AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 9, 1997
REGISTRATION STATEMENT NO. 333-32775
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
AND
POST EFFECTIVE AMENDMENT
Under
The Securities Act of 1933
----------------
THE MONEY STORE INC.
(Representative of the Trusts described herein)
AND THE ORIGINATORS LISTED BELOW
The Money Store/D.C. Inc. TMS Mortgage Inc.
The Money Store/Kentucky Inc. The Money Store Investment Corporation
The Money Store/Minnesota Inc. The Money Store of New York, Inc.
The Money Store Home Equity Corp. The Money Store Commercial Mortgage Inc.
(Exact name of registrant as specified in its charter)
* *
State of Incorporation IRS Employer Identification Number
* -- See Schedule A
2840 Morris Avenue
Union, New Jersey 07083
(908) 686-2000
(Address, including zip code, and telephone number, including
area code,
of Registrant's principal executive office)
Eric R. Elwin, Esq.
Vice President and Corporate Counsel
2840 Morris Avenue
Union, New Jersey 07083
(908) 686-2000
(Name, address, including zip code, and telephone number,
including area code,
of agent for service)
Copies to:
Richard L. Fried, Esq.
Stroock & Stroock & Lavan LLP
180 Maiden Lane
New York, New York 10038-4982
<PAGE>
SCHEDULE A
State of IRS Employer
Registrant Incorporation Identification
Number
The Money Store Inc. New Jersey 22-2293022
TMS Mortgage Inc. New Jersey 22-3217781
The Money Store/D.C. Inc. D.C. 22-2133027
The Money Store/Kentucky Inc. Kentucky 22-2459832
The Money Store Home Equity Corp. Kentucky 22-2522232
The Money Store/Minnesota Inc. Minnesota 22-3003495
The Money Store Investment Corporation New Jersey 22-2293019
The Money Store of New York, Inc. New York 22-3143559
The Money Store Commercial Mortgage Inc. New Jersey 22-2378261
<PAGE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. ---
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. x
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. ---
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. ---
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. ---
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===================================================================================================================
Proposed
Amount Maximum Proposed Amount Of
Title Of Securities To Be Aggregate Maximum Registration
Being Registered Registered(1) Price Aggregate Fee
Per Unit(2) Offering
Price
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
The Money Store $10,000,000,000 100% $10,000,000,000 $3,030,303.03
Asset (3)
Backed Notes and
The Money Store
Asset
Backed Certificates
- -------------------------------------------------------------------------------------------------------------------
The Guaranty of The (4) (4) (4) (4)
Money
Store Inc.
===================================================================================================================
</TABLE>
(1) The amount of securities being registered, together with
approximately $3,625,000,000 remaining amount of Securities
previously registered by the Registrant (Registration
Statement No. 333-20817), represents the maximum aggregate
principal amount of Securities currently expected to be
offered for sale. The amount of the filing fee associated
with such previously registered Securities that was
previously paid was approximately $1,098,484.85. The
Prospectus included in this Registration Statement also
related to the above mentioned Registration Statement
(Registration Statement No. 333-20817) as permitted by Rule
429.
(2) Estimated solely for purposes of calculating the registration fee.
(3) $303.03 of which has been previously paid.
(4) No additional consideration will be paid for the Guaranty.
<PAGE>
PURSUANT TO RULE 429 UNDER THE SECURITIES ACT OF 1933, EACH PROSPECTUS INCLUDED
IN THIS REGISTRATION STATEMENT IS A COMBINED PROSPECTUS AND RELATES TO
REGISTRATION STATEMENT NO. 333-20817 ON FORM S-3, ORIGINALLY FILED ON JANUARY
31, 1997 BY THE REGISTRANTS AND DECLARED EFFECTIVE ON MARCH 7, 1997. THIS
REGISTRATION STATEMENT, WHICH IS A NEW REGISTRATION STATEMENT, ALSO CONSTITUTES
POST-EFFECTIVE AMENDMENT NO. 1 TO REGISTRATION STATEMENT NO. 333-20817 AND SUCH
POST-EFFECTIVE AMENDMENT SHALL HEREAFTER BECOME EFFECTIVE CONCURRENTLY WITH THE
EFFECTIVENESS OF THIS REGISTRATION STATEMENT AND IN ACCORDANCE WITH SECTION 8(C)
OF THE SECURITIES ACT OF 1933.
<PAGE>
SUBJECT TO COMPLETION, DATED SEPTEMBER 9, 1997.
PROSPECTUS SUPPLEMENT
(To Prospectus dated _______ __, 1997)
THE MONEY STORE TRUST 1997-____
$________ ___% Class A-1 Certificates $_________ ___% Class A-5 Certificates
$________ ___% Class A-2 Certificates $_________ ___% Class A-6 Certificates
$________ ___% Class A-3 Certificates $_________ ___% Adjustable Rate Class
A-7 Certificates
$________ ___% Class A-4 Certificates $_________ ___% Class A-8 Certificates
$____________ ___% Class A-9 Certificates
The Money Store Asset Backed Certificates, Series 1997-____
THE MONEY STORE INC.
Representative and Servicer
The Money Store Asset Backed Certificates Series 1997-____ (the
"Certificates"), will represent fractional undivided ownership interests in a
trust fund, designated as The Money Store Trust 1997-____ (the "Trust"). The
primary assets of the Trust will be four separate cross-supported pools ("Pool
I," "Pool II," "Pool III" and "Pool IV," respectively, and collectively, the
"Pools") of loans having the characteristics described herein. Pool I and Pool
II will consist of one- to four-family ("single family") residential first and
second mortgage loans (collectively, the "Home Equity Loans") having original
terms to stated maturity of up to 40 years, and with fixed rates, in the case of
Pool I, and adjustable rates, in the case of Pool II. Pool III will consist of
fixed rate, single family residential first, second and more junior home
improvement mortgage loans having original terms to stated maturity of up to 30
years (the "Home Improvement Loans"), certain of which Home Improvement Loans
(the "FHA Loans") are partially insured by the Federal Housing Administration
(the "FHA") of the United States Department of Housing and Urban Development
("HUD") under Title I of the National Housing Act of 1934 ("Title I"). Pool IV
will consist of fixed rate five or more unit residential or mixed-use
residential and commercial first mortgage loans (the "Multifamily Loans" and,
together with the Home Equity Loans and the Home Improvement Loans, the "Loans")
having original terms to stated maturity of up to 30 years. The Trust will also
include funds on deposit in a separate trust account (the "Pre-Funding Account")
to be established with the Trustee (as defined herein). All of the Loans were
originated or purchased by certain wholly-owned subsidiaries (the "Originators")
of The Money Store Inc. (the "Representative"). The Money Store Inc. will act as
the servicer (in such capacity, the "Servicer") of the Loans and the
administrator (in such capacity, the "Claims Administrator") of the FHA Loans.
Except for certain representations and warranties relating to the Loans and
certain other matters, The Money Store Inc.'s obligations with respect to the
Loans are limited to its contractual servicing obligations.
-----------------------------
SEE "RISK FACTORS" ON PAGE S-39 HEREIN AND PAGE 23 OF THE PROSPECTUS
FOR A DISCUSSION OF CERTAIN RISKS WHICH SHOULD BE CONSIDERED BY
PROSPECTIVE PURCHASERS OF THE CERTIFICATES OFFERED HEREBY.
-----------------------
<PAGE>
________ certificate guaranty insurance policies (the "Certificate Guaranty
Insurance Policies") with respect to the Class A Certificates, as defined
herein, will be issued by
[NAME OF CERTIFICATE GUARANTY INSURER]
Full and complete payment to [Name of Trustee] as Trustee for the holders
of the Class A Certificates, of Insured Payments (as defined herein), consisting
primarily of interest due to such holders in respect of the Certificates on each
Remittance Date and principal at the times described herein, is unconditionally
and irrevocably guaranteed pursuant to the terms of the Certificate Guaranty
Insurance Policies. See "The Certificate Guaranty Insurance Policies and the
Certificate Guaranty Insurer" herein for a more complete description of the
Certificate Guaranty Insurance Policies. The Certificate Guaranty Insurer does
not insure any Certificateholders' LIBOR Interest Carryover (as defined herein).
(cover continued on next page)
THE CLASS A CERTIFICATES REPRESENT INTERESTS IN THE TRUST ONLY
AND DO NOT REPRESENT INTERESTS IN OR OBLIGATIONS OF THE MONEY
STORE INC., [CERTIFICATE GUARANTY INSURER] OR ANY OF THEIR
RESPECTIVE AFFILIATES OR SUBSIDIARIES,
[EXCEPT FOR THE GUARANTY OF THE MONEY STORE INC. AS PROVIDED
HEREIN]. EXCEPT
FOR THE FHA LOANS, THE LOANS ARE NOT INSURED OR GUARANTEED BY
ANY GOVERNMENTAL AGENCY, AND NO GOVERNMENTAL AGENCY HAS PASSED
UPON
THE ACCURACY OF THE INFORMATION CONTAINED IN THIS PROSPECTUS
SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS.
---------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION NOR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
---------------------
The Class A Certificates will be purchased by [Name of Underwriters] (the
"Underwriters") from the Representative, on behalf of the Originators, and will
be offered by the Underwriters from time to time in negotiated transactions at
varying prices to be determined at the time of sale. Proceeds to the Originators
from the sale of the Class A Certificates in the amounts listed above are
expected to be approximately _____% of the aggregate principal balance of such
Certificates, plus, with respect to the Class A-1, Class A-2, Class A-3, Class
A-4, Class A-5, Class A-6, Class A-8 and Class A-9 Certificates, accrued
interest thereon at the applicable Pass-Through Rate from _______, 1997 (or
_______, 1997 with respect to the Class A-7 Certificates) to but not including
the Closing Date, but before deducting expenses payable by the Representative,
estimated to be $________. See "Summary of Terms--Securities Offered" and
"Underwriting" herein.
The Class A Certificates are offered by the Underwriters subject to prior
sale, when, as and if issued to and accepted by the Underwriters, subject to
approval of certain legal matters by counsel for the Underwriters. The
Underwriters reserve the right to withdraw, cancel or modify such offer and to
reject orders in whole or in part. It is expected that delivery of the Class A
Certificates will be made in book-entry form only through the Same Day Funds
Settlement System of The Depository Trust Company on or about _______, 1997.
__________ ___, 1997.
[NAMES OF UNDERWRITERS]
<PAGE>
(cover continued from previous page)
Additional loans (collectively, the "Subsequent Loans") may be purchased by the
Trust from the Originators from time to time on or before the close of business
of _______, 1997 from funds on deposit in the Pre-Funding Account. Any
Subsequent Loan acquired by the Trust for Pools I or II will be assigned to one
of such Pool based upon whether such Subsequent Loan is a Home Equity Loan
bearing interest at a fixed rate or an adjustable rate (in either such case, a
"Subsequent Home Equity Loan"). Any Subsequent Loan acquired by the Trust for
Pool III will be a Home Improvement Loan (a "Subsequent Home Improvement Loan").
Any Subsequent Loan acquired by the Trust for Pool IV will be a Multifamily Loan
(a "Subsequent Multifamily Loan"). See "The Loan Pools--General." On the Closing
Date (as defined herein), an aggregate cash amount not to exceed approximately
$______________, in the case of Pool I, approximately $______________, in the
case of Pool II, approximately $_____________, the case of Pool III, and
approximately $____________, in the case of Pool IV, will be deposited into the
Pre-Funding Account. The amount in the Pre-Funding Account allocated to each
Pool may be used to acquire Subsequent Loans for the respective Pool. See "The
Agreement--Pre-Funding Account" herein.
The Certificates will consist of [9] classes of regular certificates (the
"Class A-1 Certificates," the "Class A-2 Certificates," the "Class A-3
Certificates," the "Class A-4 Certificates," the "Class A-5 Certificates," the
"Class A-6 Certificates," the "Class A-7 Certificates," the "Class A-8
Certificates" and the "Class A-9 Certificates," respectively, and collectively,
the "Class A Certificates") and one class of residual certificates (the "Class R
Certificates"). Only the Class A Certificates are offered hereby. The Class A-1,
Class A-2, Class A-3, Class A-4, Class A-5 and Class A-6 Certificates generally
will represent the right to receive payments measured by amounts distributable
on or with respect to the Home Equity Loans in Pool I. The Class A-7
Certificates generally will represent the right to receive payments measured by
amounts distributable on or with respect to the Home Equity Loans in Pool II.
The Class A-8 Certificates generally will represent the right to receive
payments measured by amounts distributable on or with respect to the Home
Improvement Loans in Pool III. The Class A-9 Certificates generally will
represent the right to receive payments measured by amounts distributable on or
with respect to the Multifamily Loans in Pool IV. However, due to the cross-
support provisions described herein, the holders of each Class of Certificates
may receive cash from any Loan, either by direct allocation or credit support
from another Pool. See "Description of the Certificates--Cross-Support
Provisions and Spread Amount" herein.
Distributions of principal and interest to the holders of the Class A
Certificates (the "Class A Certificateholders" or "Holders") will be made on the
15th day of each month or, if the 15th day is not a business day, the first
business day thereafter, commencing _______, 1997 (each such day, a "Remittance
Date"). On each Remittance Date, the owners of the Class A-1 through Class A-6,
Class A-8 and Class A-9 Certificates as of the preceding Record Date (as defined
herein) will be entitled to receive interest on the outstanding principal
balances of the respective Class at the rates set forth on the front cover, and
distributions with respect to principal as described herein. On the first
Remittance Date, the owners of the Class A-7 Certificates will be entitled to
receive interest on the outstanding principal balance of the respective Class at
the rate of _____% per annum. On each Remittance Date thereafter, the owners of
the Class A-7 Certificates will be entitled to receive interest on the
outstanding principal balance of such Class at the adjustable rates determined
as set forth herein. The owners of the Class A-7 Certificates also will receive
distributions with respect to principal as described herein. Additionally, any
Pre-Funded Amount (as defined herein) remaining in the Pre-Funding Account at
the close of business on _______, 1997 will be distributed as a principal
prepayment on _______, 1997 (together with __ days' accrued interest (or, in the
case of the Class A-7 Certificates, __ days' accrued interest) at the applicable
Pass-Through Rates on the amount of such prepayment) to the Class A Certificates
then entitled to receive distributions of principal. The interest due such Class
A Certificates on the _______, 1997 Remittance Date will be adjusted to take
account of such distribution.
There is currently no secondary market for the Class A Certificates. The
Underwriters intend to make a secondary market for the Class A Certificates, but
have no obligation to do so. There can be no assurance that a secondary market
for the Class A Certificates will develop or, if one does develop, that it will
offer sufficient liquidity of investment or continue.
As described herein, a real estate mortgage investment conduit ("REMIC")
election will be made in connection with certain assets of the Trust for federal
income tax purposes. As described more fully herein, the Class A Certificates
will constitute "regular interests" in the REMIC and the Class R Certificates
will constitute the single class of "residual interest" in the REMIC. See
"Federal Income Tax Consequences" in the Prospectus and "Federal Income Tax
Considerations" herein.
The Class A Certificates offered by this Prospectus Supplement constitute a
separate series of Certificates being offered by the Representative and the
Originators pursuant to the Prospectus dated _______, 1997, of which this
Prospectus Supplement is a part and which accompanies this Prospectus
Supplement. The Prospectus contains important information regarding this
offering which is not contained herein and prospective investors are urged to
read the Prospectus and this Prospectus Supplement in full.
(end of cover page)
UNTIL 90 DAYS AFTER THE DATE HEREOF, ALL DEALERS EFFECTING TRANSACTIONS IN THE
CLASS A CERTIFICATES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE
REQUIRED TO DELIVER A PROSPECTUS SUPPLEMENT AND THE PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT AND
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
[CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
WHICH STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE SECURITIES
OFFERED HEREBY, INCLUDING OVER-ALLOTMENT, STABILIZING TRANSACTIONS AND SYNDICATE
COVERING TRANSACTIONS. FOR A DETAILED DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."]
[INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT.
A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY
NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE
REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL
NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO
BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE
IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY STATE.]
<PAGE>
SUMMARY OF TERMS
This following summary of certain pertinent information is qualified in its
entirety by reference to the detailed information appearing elsewhere in this
Prospectus Supplement and the accompanying Prospectus. Capitalized terms used
but not defined in this Summary of Terms have the meanings assigned to such
terms elsewhere in this Prospectus Supplement.
Securities Offered............... The Money Store Asset Backed Certificates,
Series 1997-____, Class A-1, Class A-2, Class
A-3, Class A-4, Class A-5, Class A-6, Class
A-7, Class A-8 and Class A-9 (the "Class A-1
Certificates," the "Class A-2 Certificates,"
the "Class A-3 Certificates," the "Class A-4
Certificates," the "Class A-5 Certificates,"
the "Class A-6 Certificates," the "Class A-7
Certificates," the "Class A-8 Certificates"
and the "Class 9 Certificates," respectively,
and collectively, the "Class A
Certificates").
The Class A-1 Certificates will be issued in
the initial principal amount of $__________
and will bear interest at the rate of _____%
per annum.
The Class A-2 Certificates will be issued in
the initial principal amount of $__________
and will bear interest at the rate of _____%
per annum.
The Class A-3 Certificates will be issued in
the initial principal amount of $__________
and will bear interest at the rate of _____%
per annum.
The Class A-4 Certificates will be issued in
the initial principal amount of $__________
and will bear interest at the rate of _____%
per annum.
The Class A-5 Certificates will be issued in
the initial principal amount of $__________
and will bear interest at the rate of _____%
per annum.
The Class A-6 Certificates will be issued in
the initial principal amount of $__________
and will bear interest at the rate of _____%
per annum.
The Class A-7 Certificates will be issued in
the initial principal amount of $___________
and will bear interest for the first
Remittance Date at the rate of _____% per
annum. For each Remittance Date thereafter,
the Class A-7 Certificates will bear interest
at a rate equal to LIBOR (as defined herein)
plus _____% (or _____% for each Remittance
Date occurring after the Optional Servicer
Termination Date), subject to the Net Funds
Cap (as defined herein), but in no event
greater than ____% per annum.
The Class A-8 Certificates will be issued in
the initial principal amount of $__________
and will bear interest at the rate of _____%
per annum.
The Class A-9 Certificates will be issued in
the initial principal amount of $__________
and will bear interest at the rate of _____%
per annum.
The statistical information presented in this
Prospectus Supplement concerning the Pool I,
Pool II, Pool III and Pool IV Loans (each as
defined herein) is based on preliminary Pools
expected to be delivered to the Trustee and
Co-Trustee on the Closing Date. The
Representative expects that loans (including
the Subsequent Loans) that were not contained
in the preliminary Pools will be added to the
final Pools. While the statistical
distribution of the characteristics for the
final Pools of Loans will vary somewhat from
the statistical distribution of such
characteristics for the preliminary Pools of
Loans presented in this Prospectus
Supplement, the Representative does not
believe that the characteristics of the final
Pools will differ materially.
Cut-Off Date...................... __________, 1997.
Closing Date...................... __________,1997.
Issuer............................ The Money Store Trust 1997-____ (the "
Trust").
Representative, Servicer and
Claims Administrator.............. The Money Store Inc., a New Jersey
corporation (in its capacity as sponsor of
the Trust, the "Representative," in its
capacity as the servicer of the Loans, the
"Servicer," and in its capacity as the
administrator of the insurance claims to the
FHA (the "Claims") with respect to the FHA
Loans, the "Claims Administrator"). In the
Agreement (as defined herein), the Claims
Administrator will appoint its subsidiary,
TMS Mortgage Inc., a New Jersey corporation,
to assist in performing the functions of the
Claims Administrator. The principal offices
of The Money Store Inc. are located at 3301 C
Street, Suite 100-M, Sacramento, California
95816 (telephone number (916) 446- 5000) and
2840 Morris Avenue, Union, New Jersey 07083
(telephone number (908) 686-2000). See "The
Representative and the Originators" herein
and in the Prospectus.
Trustee ......................... [Name of Trustee,] a _________ banking
corporation,] in its capacity as trustee. See
"The Trustee" herein.
[Co-Trustee ...................... [Name of Co-Trustee,] a ________ banking
association headquartered in ________, will
be the Co-Trustee with respect to the Home
Improvement Loans. See "The Co-Trustee"
herein.]
[Custodian ....................... [Name of Custodian,] a ________ banking
association, headquartered in ________, will
be the Custodian with respect to the Home
Improvement Loans. In such capacity, it will
retain the files relating to the Home
Improvement Loans. See "The Custodian"
herein.]
Originators of the Loans......... Each Home Equity Loan to be included in Pool
I and Pool II, each of the Home Improvement
Loans to be included in Pool III and each of
the Multifamily Loans to be included in Pool
IV will have been originated and
underwritten, or purchased and
re-underwritten, by certain wholly-owned
subsidiaries of the Representative (the
"Originators"). Additionally, each Subsequent
Loan to be included in Pool I, Pool II, Pool
III and Pool IV will have been originated and
underwritten, or purchased and
re-underwritten, by an Originator.
Description of the Certificates.. The Money Store Asset Backed Certificates,
Series 1997-____ (the "Certificates") consist
of the Class A-1, Class A-2, Class A-3, Class
A-4, Class A-5, Class A-6, Class A-7, Class
A-8 and Class A-9 Certificates (collectively,
the "Class A Certificates") and the Class R
Certificates. Only the Class A Certificates
are offered hereby.
The Certificates will be issued pursuant to a
Pooling and Servicing Agreement (the
"Agreement"), dated as of the Cut-Off Date,
among the Representative, the Originators and
[Name of Trustee], as trustee (the
"Trustee").
The Certificates will represent fractional
undivided ownership interests in the Trust,
the assets of which will consist primarily of
four separate pools ("Pool I," "Pool II,"
"Pool III" and "Pool IV," respectively, and
collectively, the "Pools") of Loans having
the characteristics described herein.
Pool I and Pool II will consist of one- to
four-family ("single-family") residential
first and second mortgage loans
(collectively, the "Home Equity Loans," which
term includes any Subsequent Home Equity
Loans acquired by either Pool I or Pool II,
unless the context requires otherwise)
expected to have aggregate principal balances
as of the Cut-Off Date of approximately
$______________ and $--------------,
respectively, and original terms to stated
maturity of up to 40 years. As described
herein, each of the Home Equity Loans in Pool
I (the "Pool I Home Equity Loans" or the
"Pool I Loans," which terms include any
Subsequent Home Equity Loans acquired by Pool
I, unless the context requires otherwise)
will bear interest at a fixed rate and each
of the Home Equity Loans in Pool II (the
"Pool II Home Equity Loans" or the "Pool II
Loans," which terms include any Subsequent
Home Equity Loans acquired by Pool II, unless
the context requires otherwise) will bear
interest at an adjustable rate as described
below. See "The Loan Pools--The Home Equity
Loan Pools" herein.
Pool III will consist of fixed rate, single
family residential first, second and more
junior home improvement loans (the "Home
Improvement Loans" or "Pool III Loans," which
terms include any Subsequent Home Improvement
Loans acquired by Pool III, unless the
context requires otherwise) expected to have
an aggregate principal balance as of the
Cut-Off Date of approximately $_____________
and original terms to stated maturity of up
to 30 years.
Pool IV will consist of five or more unit
residential or mixed-use residential and
commercial first mortgage loans (the
"Multifamily Loans" or "Pool IV Loans," which
terms include any Subsequent Multifamily
Loans acquired by Pool IV, unless the context
requires otherwise) expected to have an
aggregate principal balance as of the Cut-Off
Date of approximately $____________ and
original terms to stated maturity of up to 30
years. See "The Loan Pools--The Multifamily
Loan Pool" herein.
Collectively, the Home Equity Loans, the Home
Improvement Loans and the Multifamily Loans
are at times referred to herein as the
"Loans."
The Class A-1, Class A-2, Class A-3, Class
A-4, Class A- 5 and Class A-6 Certificates
generally will be entitled to receive
payments measured by amounts distributable on
or with respect to the Pool I Home Equity
Loans in the order and priorities described
herein. The Class A-7 Certificates generally
will be entitled to receive payments measured
by amounts distributable on or with respect
to the Pool II Home Equity Loans. The Class
A-8 Certificates generally will be entitled
to receive payments measured by amounts
distributable on or with respect to the Pool
III Home Improvement Loans. The Class A-9
Certificates generally will be entitled to
receive payments measured by amounts
distributable on or with respect to the Pool
IV Multifamily Loans. However, due to the
cross-support provisions described herein,
the holders of each Class of Certificates may
receive cash from any Loan, either by direct
allocation or credit support from another
Pool. See "Description of the
Certificates--Cross- Support Provisions and
Spread Amount" herein. Also, amounts, if any,
on deposit in the Spread Account described
herein will be available to cover shortfalls
in amounts due Certificateholders, without
distinction as to Pool.
The Class A-1, Class A-2, Class A-3, Class
A-4, Class A- 5 and Class A-6 Certificates
are also referred to herein as the "Pool I
Certificates" and the holders of the Class
A-1, Class A-2, Class A-3, Class A-4, Class
A-5 and Class A-6 Certificates are also
referred to herein as the "Pool I
Certificateholders." The Class A-7
Certificates are also referred to herein as
the "Pool II Certificates" and the holders of
the Class A-7 Certificates are also referred
to herein as the "Pool II
Certificateholders." The Class A-8
Certificates are also referred to herein as
the "Pool III Certificates" and the holders
of the Class A-8 Certificates are also
referred to herein as the "Pool III
Certificateholders." The Class A-9
Certificates are also referred to herein as
the "Pool IV Certificates" and the holders of
the Class A-9 Certificates are also referred
to herein as the "Pool IV
Certificateholders."
The projected last Remittance Dates for the
Class A-1, Class A-2, Class A-3, Class A-4,
Class A-5, Class A-6, Class A-7-I, Class
A-7-II, Class A-8 and Class A-9 Certificates
are, ________, -------, -------, ---------,
---------, ---------, ---------, ________,
_______, and, _______, respectively. It is
expected that the actual last Remittance Date
for each Class of Class A Certificates will
occur significantly earlier than its
projected last Remittance Date. See
"Maturity, Prepayment and Yield
Considerations" herein.
The Class A Certificates are issuable in
book-entry form in minimum denominations of
$1,000 original principal amount and integral
multiples of $1,000 in excess thereof, except
that one certificate of each Class of Class A
Certificates may be issued in a different
denomination and, if so issued, will be held
in physical form.
Pre-Funding Account............... On the Closing Date, an aggregate cash amount
(the "Pre-Funded Amount") will be deposited
into the Pre-Funding Account in an amount not
to exceed approximately $______________, in
the case of Pool I, approximately
$______________, in the case of Pool II,
approximately $_____________, in the case of
Pool III, and $____________, in the case of
Pool IV. Amounts allocated to Pool I, Pool
II, Pool III and Pool IV, as the case may be,
may be used only (i) to acquire Subsequent
Loans for the related Pool and (ii) to make
accelerated payments of principal on the
Certificates of the related Pool. During the
period (the "Funding Period") from the
Closing Date until the earliest of (i) the
date on which the amount on deposit in the
Pre-Funding Account, is less than $200,000,
(ii) the date on which an Event of Default
occurs under the Agreement or (iii) the close
of business on _______, 1997, amounts will,
from time to time, be withdrawn from the
Pre-Funding Account to purchase Subsequent
Home Equity Loans, Subsequent Home
Improvement Loans or Subsequent Multifamily
Loans in accordance with the Agreement. Any
Pre-Funded Amount remaining at the end of the
Funding Period will be distributed as a
principal prepayment on the next Remittance
Date to the Class A Certificates of the
related Pool as set forth herein under
"--Principal." However, any Pre-Funded Amount
remaining at the close of business on
_______, 1997 will be distributed as a
principal prepayment on _______, 1997 (the
"Special Remittance Date") to the Class A
Certificates.
The Pre-Funding Account moneys funded from
the sale of Pool I, Pool II, Pool III or Pool
IV Certificates, respectively, may not be
used to acquire Loans relating to any other
Pool.
Capitalized Interest Account...... On the Closing Date, the Representative also
will make a cash deposit in an account (the
"Capitalized Interest Account") in the name
of the Trustee on behalf of the Trust. The
amount, if any, deposited in the Capitalized
Interest Account will be used by the Trustee
on the Remittance Dates occurring in _______,
_______ and _______ 1997 to fund the excess,
if any, of (i) the amount of interest accrued
for each such Remittance Date at the weighted
average Pass-Through Rates of the Class A
Certificates on the portion of the Class A
Certificates having principal balances
exceeding the principal balances of the Loans
over (ii) the amount of any earnings on funds
in the Pre- Funding Account that are
available to pay interest on the Class A
Certificates on each such Remittance Date.
Additionally, if a principal prepayment is
made on the Special Remittance Date to any
Class of Class A Certificates, such Class A
Certificates also will receive on such date,
from the Capitalized Interest Account, an
amount equal to __ days' interest (or, in the
case of the Class A-7 Certificates, __ days'
interest) at the applicable Pass-Through
Rates on the amount of such principal
prepayment. Any amounts remaining in the
Capitalized Interest Account on the Special
Remittance Date and not used for such
purposes are required to be paid directly to
the holders of the Class R Certificates on
such Special Remittance Date.
Remittance and Record
Dates............................ Distributions on the Class A Certificates
will be made by or on behalf of the Trustee
on the 15th day of each month, or if such day
is not a business day, on the first business
day thereafter, commencing _______, 1997
(each, a "Remittance Date"), to each person
in whose name a Class A Certificate is
registered on the last day of the preceding
calendar month (the "Record Date"), except
that the final distribution on each Class of
Class A Certificates will be made only upon
presentation and surrender of such
Certificates at the office or agency
designated for that purpose. Any Pre-Funded
Amount remaining at the close of business on
_______, 1997 (together with __ days'
interest (or, in the case of the Class A-7
Certificates, __ days' interest) thereon at
the applicable Pass-Through Rates) will be
distributed by or on behalf of the Trustee on
the Special Remittance Date to the Classes of
Class A Certificates of the related Pool then
entitled to receive payments of principal in
the order and percentages as described herein
under "--Principal." Such distribution will
be made to each person in whose name a Class
A Certificate of any such Class is registered
on _______, 1997.
Interest.......................... To the extent funds are available therefor
from receipts on the Pool I, Pool II, Pool
III or Pool IV Loans, as the case may be,
advances by the Servicer, payments under the
related Certificate Guaranty Insurance Policy
(and, with respect to the Pool III
Certificates, any FHA Payments, as defined
below under "--Obligations of the Claims
Administrator") and, for the Remittance Dates
occurring in _______, _______ and _______
1997, any amounts transferred to the
Certificate Account (as defined under "The
Agreement--Payments on the Loans" herein)
from the Pre-Funding Account or the
Capitalized Interest Account, on each
Remittance Date, the Class A-1, Class A-2,
Class A-3, Class A-4, Class A-5, Class A-6,
Class A-8 and Class A-9 Certificateholders
will receive 30 days' interest at the rate of
_____% per annum (the "Class A-1 Pass-Through
Rate"), _____% per annum (the "Class A-2
Pass-Through Rate"), _____% per annum (the
"Class A-3 Pass-Through Rate"), _____% per
annum (the "Class A-4 Pass- Through Rate"),
_____% per annum (the "Class A-5 Pass-Through
Rate"), _____% per annum (the "Class A-6
Pass-Through Rate"), _____% per annum (the
"Class A-8 Pass-Through Rate") and _____% per
annum (the "Class A-9 Pass-Through Rate"),
respectively, on the Class A-1, Class A-2,
Class A-3, Class A-4, Class A-5, Class A-6,
Class A-8 and Class A-9 Principal Balances
(as defined under "Description of the
Certificates-Distributions on the Class A
Certificates" herein) outstanding immediately
prior to such Remittance Date. Also, to the
extent funds are available therefor, the
Class A-7 Certificateholders will receive one
month's interest (based on the actual number
of days elapsed) at the rate (the "Class A-7
Pass-Through Rate") of LIBOR plus % (or % for
each Remittance Date occurring after the
Optional Servicer Termination Date), subject
to the Net Funds Cap, but in no event greater
than % (which maximum rate will be effective
commencing with the Remittance Date occurring
in __________ 199_).
The amount of interest each Class of
Certificates is entitled to receive on each
Remittance Date is referred to as the "Class
A-1 Current Interest Requirement," the "Class
A-2 Current Interest Requirement," the "Class
A-3 Current Interest Requirement," the "Class
A-4 Current Interest Requirement," the "Class
A-5 Current Interest Requirement," the "Class
A-6 Current Interest Requirement," the "Class
A-7 Current Interest Requirement," the "Class
A-8 Current Interest Requirement" and the
"Class A-9 Current Interest Requirement,"
respectively.
The Class A-1 Current Interest Requirement,
the Class A-2 Current Interest Requirement,
the Class A-3 Current Interest Requirement,
the Class A-4 Current Interest Requirement,
the Class A-5 Current Interest Requirement
and the Class A-6 Current Interest
Requirement are also referred to herein
collectively as the "Pool I Current Interest
Requirement." The Class A-7 Current Interest
Requirement is also referred to herein as the
"Pool II Current Interest Requirement." The
Class A-8 Current Interest Requirement is
also referred to herein as the "Pool III
Current Interest Requirement." The Class A-9
Current Interest Requirement is also referred
to herein as the "Pool IV Current Interest
Requirement."
Notwithstanding the foregoing, if a principal
prepayment is made to a Class of Class A
Certificates on the Special Remittance Date,
each such Class also will receive on such
date ___ days' interest (or, in the case of
the Class A-7 Certificates, __days' interest)
at the applicable Pass-Through Rate on the
amount of such prepayment. Further, the
Current Interest Requirement for each such
Class for the _______ 1997 Remittance Date
will be based on 30 days' interest (or, in
the case of the Class A-7 Certificates, the
actual number of days since the _______ 1997
Remittance Date) on the related Principal
Balance on _______, 1997, after giving effect
to such principal prepayment.
As to any Remittance Date, the "Net Funds
Cap" will be a percentage equal to the
difference between (A) the sum of (i) the
weighted average Pool II Mortgage Interest
Rate and (ii), through and including the
Remittance Date occurring in __________,
199_, to the extent available, one-twelfth of
_______% of the principal balance of the Pool
I Loans immediately prior to the related Due
Period (and, with respect to the Remittance
Dates in _______, _______ and _______, 1997,
one- twelfth of ________% of the amount in
the Pre- Funding Account immediately prior to
such Remittance Date allocated to Pool I), in
each case expressed as a percentage of the
Class A-7 Principal Balance immediately prior
to such Remittance Date, minus (B) the sum of
(i) the percentages used in determining the
Servicing Fee, the Contingency Fee, the fee
due the Trustee, the premium due the
Certificate Guaranty Insurer and, (ii)
commencing with the Remittance Date in
_________, 1997, one-twelfth of ________% of
the principal balance of the Pool II Loans
immediately prior to the related Due Period
expressed as a percentage of the Class A-7
Principal Balance immediately prior to such
Remittance Date.
If on any Remittance Date the Pass-Through
Rate for the Class A-7 Certificates is based
upon the Net Funds Cap, the excess of (i) the
amount of interest the Class A-7 Certificates
would be entitled to receive on such
Remittance Date at a rate equal to LIBOR plus
the applicable margin (but in no event
greater than ____%) over (ii) the amount of
interest such Class will receive on such
Remittance Date at the Net Funds Cap,
together with the unpaid portion of any such
excess from prior Remittance Dates (and
interest accrued thereon at the then
applicable Pass- Through Rate, without giving
effect to the Net Funds Cap) is referred to
herein as the "Certificateholders' LIBOR
Interest Carryover." Any Certificateholders'
LIBOR Interest Carryover will be paid on
future Remittance Dates as set forth herein
under "The Agreement--Flow of Funds." No
Certificateholders' LIBOR Interest Carryover
will be paid to the Class A-7 Certificates
after the Principal Balance of such Class is
reduced to zero. The ratings of the Class A-7
Certificates do not address the likelihood of
the payment of the amount of any
Certificateholders' LIBOR Interest Carryover
and the Certificate Guaranty Insurance
Policies do not guaranty payment of any such
amount.
Interest with respect to the Class A
Certificates will accrue on the basis of a
360-day year consisting of twelve 30-day
months (or, in the case of the Class A-7
Certificates, on the basis of a 360-day year
consisting of the actual number of days
elapsed since interest was last paid). See
"Description of the Certificates" herein.
Principal......................... To the extent funds are available therefor
from receipts on the Pool I, Pool II, Pool
III or Pool IV Loans, as the case may be,
payments under the related Certificate
Guaranty Insurance Policy (and, with respect
to the Pool III Certificates, any FHA
Payments) and, if applicable, for the
Remittance Dates occurring in _______,
_______ and _______, 1997, any amounts
transferred to the Certificate Account from
the Pre-Funding Account or the Capitalized
Interest Account, and after payment of
interest as described above, on each
Remittance Date, the Pool I, Pool II, Pool
III and Pool IV Certificateholders will
receive an amount (the "Pool I Principal
Distribution Amount," the "Pool II Principal
Distribution Amount," the "Pool III Principal
Distribution Amount" and the "Pool IV
Principal Distribution Amount," respectively)
equal to the excess of (X) the sum, without
duplication, of (i) each payment of principal
received by the Servicer or any Subservicer
(exclusive of Curtailments, Principal
Prepayments and amounts described in clause
(iii) hereof) during the related Due Period
with respect to the Pool I, Pool II, Pool III
or Pool IV Loans, as the case may be, (ii)
all Curtailments and all Principal
Prepayments received by the Servicer or any
Subservicer during the related Due Period
with respect to the Pool I, Pool II, Pool III
or Pool IV Loans, as the case may be, (iii)
the principal portion of all Insurance
Proceeds, Released Mortgaged Property
Proceeds and Net Liquidation Proceeds
received by the Servicer or any Subservicer
during the related Due Period with respect to
the Pool I, Pool II, Pool III or Pool IV
Loans, as the case may be (and, with respect
to the Pool III Loans, any FHA Payments
received by the Claims Administrator with
respect to principal during the related Due
Period), (iv) that portion of the purchase
price for any Pool I, Pool II, Pool III or
Pool IV Loan, as the case may be, repurchased
by The Money Store Inc. as a remedy for
breaches of representations and warranties
which represents principal and any
Substitution Adjustments, in either case to
the extent received by the Trustee as of the
related Determination Date, (v) any proceeds
representing principal received by the
Trustee in connection with the liquidation of
Pool I, Pool II, Pool III or Pool IV, as the
case may be, or termination of the Trust,
(vi) the amount of any Subordination Deficit
(as defined under "Description of the
Certificates--Spread Amount" herein) with
respect to Pool I, Pool II, Pool III or Pool
IV, as the case may be, for such Remittance
Date, (vii) any moneys released from the Pre-
Funding Account, if any, on the _______,
_______ or _______ 1997 Remittance Date as a
prepayment of the Pool I, Pool II, Pool III
or Pool IV Certificates, and (viii) the
amount of any Subordination Increase Amount
(as defined under "Description of the
Certificates--Spread Amount" herein) with
respect to Pool I, Pool II, Pool III or Pool
IV, as the case may be, for such Remittance
Date, over (Y) the amount of any
Subordination Reduction Amount (as defined
under "Description of the
Certificates--Spread Amount" herein) with
respect to Pool I, Pool II, Pool III or Pool
IV, as the case may be, for such Remittance
Date.
On each Remittance Date, the Pool I Principal
Distribution Amount will be distributed to
the Holders of the Pool I Certificates in the
following order of priority: (i) first, to
the Class A-1 Certificateholders until the
Class A-1 Principal Balance is reduced to
zero and such Certificateholders have
received an amount equal to the amount
described in clause (iv) of the definition of
Pool I Distribution Amount that is recovered
from such Certificateholders; (ii) second, to
the Class A-2 Certificateholders until the
Class A-2 Principal Balance is reduced to
zero and such Certificateholders have
received an amount equal to the amount
described in clause (iv) of the definition of
Pool I Distribution Amount that is recovered
from such Certificateholders, (iii) third, to
the Class A-3 Certificateholders until the
Class A-3 Principal Balance is reduced to
zero and such Certificateholders have
received an amount equal to the amount
described in clause (iv) of the definition of
Pool I Distribution Amount that is recovered
from such Certificateholders, (iv) fourth, to
the Class A-4 Certificateholders until the
Class A-4 Principal Balance is reduced to
zero and such Certificateholders have
received an amount equal to the amount
described in clause (iv) of the definition of
Pool I Distribution Amount that is recovered
from such Certificateholders, (v) fifth, to
the Class A-5 Certificateholders until the
Class A-5 Principal Balance is reduced to
zero and such Certificateholders have
received an amount equal to the amount
described in clause (iv) of the definition of
Pool I Distribution Amount that is recovered
from such Certificateholders; and (vi) sixth,
to the Class A-6 Certificateholders until the
Class A-6 Principal Balance is reduced to
zero and such Certificateholders have
received an amount equal to the amount
described in clause (iv) of the definition of
Pool I Distribution Amount that is recovered
from such Certificateholders.
On each Remittance Date, the Pool II
Principal Distribution Amount will be
distributed to the Class A-7
Certificateholders until the Class A-7
Principal Balance is reduced to zero and such
Certificateholders have received an amount
equal to the amount described in clause (iv)
of the definition of Pool II Distribution
Amount that is recovered from such
Certificateholders.
On each Remittance Date, the Pool III
Principal Distribution Amount will be
distributed to the Class A-8
Certificateholders until the Class A-8
Principal Balance is reduced to zero and such
Certificateholders have received an amount
equal to the amount described in clause (iv)
of the definition of Pool III Distribution
Amount that is recovered from such
Certificateholders.
On each Remittance Date, the Pool IV
Principal Distribution Amount will be
distributed to the Class A-9
Certificateholders until the Class A-9
Principal Balance is reduced to zero and such
Certificateholders have received an amount
equal to the amount described in clause (iv)
of the definition of Pool IV Distribution
Amount that is recovered from such
Certificateholders.
On any Remittance Date, the "Pool I
Distribution Amount," the "Pool II
Distribution Amount," the "Pool III
Distribution Amount" and the "Pool IV
Distribution Amount" will equal the sum of
(i) the Pool I, Pool II, Pool III or Pool IV
Principal Distribution Amount, as the case
may be, (ii) the Pool I, Pool II, Pool III or
Pool IV Current Interest Requirement, as the
case may be, (iii) the Pool I Carry-Forward
Amount, the Pool II Carry-Forward Amount, the
Pool III Carry-Forward Amount or the Pool IV
Carry-Forward Amount as the case may be, and
(iv) any amount received by the Trustee from
the Servicer that constitutes a Monthly
Advance with respect to a Pool I, Pool II,
Pool III or Pool IV Loan, as the case may be,
and that is recoverable and sought to be
recovered as a voidable preference by a
trustee in bankruptcy pursuant to the United
States Bankruptcy Code in accordance with a
final, nonappealable order of a court having
competent jurisdiction.
The "Due Period" with respect to any
Remittance Date is the calendar month
preceding the month of such Remittance Date.
The "Pool I Carry-Forward Amount," the "Pool
II Carry- Forward Amount," the "Pool III
Carry-Forward Amount" and the "Pool IV
Carry-Forward Amount" with respect to any
Remittance Date will equal the amount, if
any, by which (i) the Pool I, Pool II, Pool
III or Pool IV Distribution Amount, as the
case may be, as of the immediately preceding
Remittance Date exceeded (ii) the amount of
the actual distribution to the Holders of the
Pool I, Pool II, Pool III or Pool IV
Certificates, as the case may be, made on
such Remittance Date (less the amount of
Insured Payments, if any, on such date)
together with interest on the amount of such
excess at one-twelfth the Class A-1, Class
A-2, Class A-3, Class A-4, Class A-5 or Class
A-6 Pass-Through Rate, as the case may be,
with respect to the Pool I Certificates, the
Class A-7 Pass-Though Rate with respect to
the Pool II Certificates, the Class A-8
Pass-Through Rate with respect to the Pool
III Certificates or the Class A-9
Pass-Through Rate with respect to the Pool IV
Certificates. The Pool II Carry-Forward
Amount does not include any
Certificateholders' LIBOR Interest Carryover.
As described above, the Holders of the Class
A Certificates will be entitled to receive
monthly distributions of principal on each
Remittance Date that generally reflects
actual (as opposed to scheduled) collections
of principal during the related Due Period.
Recoveries for losses on Loans that were
finally liquidated during a Due Period (the
"Unrecovered Amounts") may or may not be
distributed to the holders of the Class A
Certificates on the related Remittance Date.
However, Holders of Class A Certificates are
entitled to receive ultimate recovery of any
Unrecovered Amounts relating to the
applicable Pool of Loans. See "Description of
the Certificates--The Pool I, Pool II, Pool
III and Pool IV Distribution Amounts" herein.
Credit Enhancement................ The credit enhancement provided for the
benefit of the Class A Certificates consists
of (i) the spread amount, the spread account
and cross-support features, which utilize the
internal cash flows of the Trust as described
herein and (ii) the Certificate Guaranty
Insurance Policies. Additionally, the Pool
III Certificates have the benefit of the FHA
Insurance described herein.
Spread Amount.................... The subordination provisions of the Trust are
intended to provide for limited acceleration
of the Class A Certificates relative to the
amortization of the Loans, generally in the
early months of the transaction. The
accelerated amortization is achieved by
applying certain excess interest collected on
the Loans to the payment of principal on the
Class A Certificates, first for the related
Pool and then for any other Pool. This
acceleration feature is intended to create,
with respect to each Pool of Loans, an amount
(the "Spread Amount"), resulting from, and
equal to, the excess of the aggregate
principal balances of the Loans of the
related Pool (plus any amounts on deposit in
the Spread Account referred to below) over
the principal balances of the Certificates of
the related Pool. The Agreement provides
that, subject to certain floors, caps and
triggers, the required level of the Spread
Amount with respect to each Pool of Loans may
increase or decrease over time. An increase
would result in a temporary period of
accelerated amortization of the Certificates
of the related Pool to increase the actual
level of the Spread Amount to its required
level; a decrease would result in a temporary
period of decelerated amortization to reduce
the actual level of the Spread Amount to its
required level. The Agreement also provides
that such excess interest, together with
certain other excess amounts, generated by
one Pool of Loans may be used to fund
shortfalls and increase the Spread Amount in
the other Pools of Loans, subject to certain
prior requirements for application of such
excess amounts. See "Description of the
Certificates-- Spread Amount" and
"Description of the
Certificates--Cross-Support Provisions and
Spread Amount" herein.
The Agreement also will provide that
following the Funding Period the required
level of the Spread Amount with respect to
each Pool of Loans may be increased. In such
event, cash up to the amount of such increase
may be deposited into an account (the "Spread
Account") to be maintained with the Trustee.
Amounts, if any, on deposit in the Spread
Account will be available to fund any Insured
Payments (as defined below) otherwise
required to be made on a Remittance Date,
without distinction as to the Pool.
Additionally, if the level of delinquencies
for the Pool III Loans exceeds certain
specified levels, excess interest received on
the Pool III Loans will not be available to
make accelerated payments of principal on
Certificates of other Pools. Rather, such
excess interest will be deposited into the
Spread Account and will be available to fund
any Insured Payments for any Pool otherwise
required to be made on a Remittance Date.
[Certificate Guaranty Insurance
Policies........................ [Name of Certificate Guaranty Insurer], a
stock insurance corporation (the "Certificate
Guaranty Insurer"), will provide separate
insurance policies (collectively, the
"Certificate Guaranty Insurance Policies")
relating to the Pool I, Pool II, Pool III and
Pool IV Certificates, respectively. Subject
to the requirements of the Certificate
Guaranty Insurance Policies described under
"The Certificate Guaranty Insurance Policies
and Certificate Guaranty Insurer,"
Certificate Guaranty Insurer unconditionally
and irrevocably guarantee that the full
amount of each Insured Payment (defined
herein) will be received by the Insurance
Paying Agent (the "Insurance Paying Agent"),
which initially will be [Name of Insurance
Paying Agent], for distribution by the
Trustee. Certificate Guaranty Insurer's
obligations under the Certificate Guaranty
Insurance Policies will be discharged to the
extent funds equal to the amount required to
be paid thereunder are received by the
Insurance Paying Agent, whether or not such
funds are properly applied by the Trustee or
the Insurance Paying Agent. The Certificate
Guaranty Insurance Policies are
noncancellable for any reason.
"Insured Payment" means (i) as of any
Remittance Date, any Deficiency Amount (as
defined below under "The Certificate Guaranty
Insurance Policies and Certificate Guaranty
Insurer") and (ii) any Preference Amount (as
defined below under "The Certificate Guaranty
Insurance Policies and Certificate Guaranty
Insurer").
As stated above, amounts, if any, in the
Spread Account will be used to fund Insured
Payments prior to draws being made on the
Certificate Guaranty Insurance Policies.
The Certificate Guaranty Insurance Policies
do not (i) cover The Money Store Inc.'s
obligation under the Agreement to repurchase
or substitute for Loans with respect to which
there has been a breach of representation,
(ii) cover any Certificateholders' LIBOR
Interest Carryover, (iii) guarantee any
specified rate of prepayments, or (iv)
provide funds to redeem the Certificates on
any specified date.
Subject to the terms of the Agreement,
Certificate Guaranty Insurer will be
subrogated to the rights of the Holders of
the Class A Certificates to the extent of any
Insured Payments made under the applicable
Certificate Guaranty Insurance Policy, but
its right to reimbursement will be subject to
the prior rights of the Holders of the Class
A Certificates to amounts to which such
Holders are entitled under the Agreement.]
[The Guaranty..................... As additional credit support for the Class
_____ Certificates, the Class ___
Certificateholders are entitled to receive on
each Remittance Date the amount equal to the
Guaranty Payments, if any, under the guaranty
provided by The Money Store Inc. (the
"Guaranty"). The "Guaranty Payment" for any
Remittance Date will equal the difference, if
any, between the Pool ___ Distribution Amount
allocable to the Class ___ Certificates and
the portion of the Pool ___ Available
Remittance Amount allocated to the Class ___
Certificates on such Remittance Date, but not
more than $___________ in the aggregate.]
FHA Insurance..................... Subject to the then remaining Reserve Amount
(as defined below) of the Co-Trustee, each
FHA Loan will be insured by the FHA in an
amount currently equal to 90% of the sum of
the following: (i) the unpaid principal and
uncollected interest earned to the date of
default, calculated on the actuarial method
even if the Mortgage Note (as defined herein)
relating to such FHA Loan provides for simple
interest, reduced by certain amounts received
by the Claims Administrator in connection
with enforcing a lien on the related
Mortgaged Property prior to the lien of the
related FHA Loan; (ii) the unpaid amount of
interest on the unpaid principal from the
date of default to the date of the initial
submission of the related Claim to the FHA
for payment plus 15 calendar days, but not
for any period greater than nine months from
the date of default, calculated at 7% per
annum; and (iii) the amount of certain
uncollected court costs, attorney's fees, and
expenses for recording the assignment of the
related Mortgage to the United States. See
"The Trusts--FHA Loans" in the Prospectus and
"Risk Factors--Limitations on FHA Insurance"
and "Lending Programs--The Home Improvement
Lending Program--FHA Loans" herein.
The Co-Trustee's Reserve
Amount.......................... Each of the FHA Loans will be insured by the
FHA, to the extent described herein, under
each Originator's FHA contract of insurance.
In connection with the transfer of the FHA
Loans from the Originators to the Co-Trustee,
the Originators also will file with the FHA
all documents necessary to effect the
transfer of the FHA insurance reserves
applicable to the FHA Loans to the
Co-Trustee's FHA contract of insurance.
Based upon information provided by the FHA,
The Money Store Inc. believes that upon the
transfer referred to above and after the
Funding Period, the FHA insurance available
to the Co-Trustee will be equal to at least
(A) 10% of the principal balance of the FHA
Loans as of the Cut-Off Date or Subsequent
Cut-Off Date, as the case may be; or (B)
thereafter, 10% of the principal balance of
all Title I loans originated or purchased and
currently reported for FHA insurance by the
Co-Trustee, less amounts for annual
reductions as described below and for
insurance claims previously paid to the Co-
Trustee by the FHA, including payments in
respect of loans other than the FHA Loans,
and increased by an amount equal to 10% of
the lesser of the original principal balance
or the purchase price paid for Title I loans
subsequently originated or purchased of
record by the Co-Trustee (in the case of
clause (A) or (B), the "Reserve Amount"). See
"The Trusts--FHA Insurance" in the Prospectus
and "Risk Factors--Limitations on FHA
Insurance" herein.
FHA Claims paid to the Co-Trustee by the FHA
with respect to Title I loans other than the
FHA Loans may affect the total amount of the
Reserve Amount.
Since the adequacy of the Co-Trustee's
Reserve Amount is dependent upon future
events, including the annual reductions in
the Reserve Amount and the reductions for the
payment of claims, no assurance can be given
that the Reserve Amount is or will be
adequate to cover 90% of all potential losses
on the FHA Loans. See "Risk
Factors--Limitations on FHA Insurance"
herein.
Obligation of the Claims
Administrator.................... If any FHA Loan becomes a 90 Day Delinquent
FHA Loan (as defined below), and if
sufficient coverage is available in the
Reserve Amount to make an FHA Payment with
respect to such FHA Loan, the Claims
Administrator may, in its sole discretion,
during any subsequent Due Period, determine
to file a Claim with the FHA with respect to
such 90 Day Delinquent FHA Loan. If the
Claims Administrator determines to file such
a Claim, the Claims Administrator will so
notify the Co-Trustee and the Custodian no
later than the Determination Date following
such determination and shall request delivery
of the related loan file (the "Trustee's Loan
File"). Upon receipt of such certification
and request, the Custodian shall, no later
than the related Remittance Date, release to
the Claims Administrator the related
Trustee's Loan File and the Co-Trustee and
the Custodian shall execute and deliver such
instruments necessary to enable the Claims
Administrator to file a Claim with the FHA on
behalf of the Co-Trustee. Within 120 days of
its receipt of the related Trustee's Loan
File, the Claims Administrator shall, in its
sole discretion, either file a Claim with the
FHA for an FHA Payment with respect to such
90 Day Delinquent FHA Loan or, if the Claims
Administrator determines not to file such a
Claim, return to the Co-Trustee the related
Trustee's Loan File.
With respect to any 90 Day Delinquent FHA
Loan transferred to the Claims Administrator
as described above, the Claims Administrator
shall deposit (or, if the Claims
Administrator is not also the Servicer, the
Claims Administrator shall instruct the
Servicer to deposit) in the Principal and
Interest Account within 24 hours of receipt
or determination thereof the following
amounts (such amounts to be net of certain
amounts that would be reimbursable to the
Servicer under the Agreement with respect to
amounts in the Principal and Interest
Account): (i) any FHA Payments; (ii) the
amount, if any, by which the FHA Payment was
reduced in accordance with FHA Regulations
due to the Claims Administrator enforcing a
lien on the related Mortgaged Property prior
to the lien of the related 90 Day Delinquent
FHA Loan; and (iii) any principal and
interest payments received with respect to a
90 Day Delinquent FHA Loan after the Due
Period in which the FHA Loan is transferred
to the Claims Administrator and before either
the related FHA Payment is paid or the
related Trustee's Loan File is returned to
the Co-Trustee, as the case may be (the
amounts referred to in (ii) and (iii) above
are referred to herein as "Related
Payments").
If an FHA Loan becomes a 90 Day Delinquent
FHA Loan when there is insufficient coverage
in the Reserve Amount or if the Claims
Administrator determines not to file a Claim
with the FHA with respect to such 90 Day
Delinquent FHA Loan, the Co-Trustee will not
transfer such FHA Loan to the Claims
Administrator, no Claim will be made to the
FHA and the Servicer may take other action,
including the commencement of foreclosure
proceedings, on the related Mortgaged
Property. The Servicer will continue to make
Monthly Advances with respect to interest on
90 Day Delinquent FHA Loans as described
under "Monthly Advances" herein.
The Certificateholders will not have any
direct right to receive the FHA Payments from
the FHA. See "Risk Factors--Dependence on
Claims Administrator, Representative and
Servicer for Making FHA Claims, Paying the
FHA Payments or Repurchasing the Loans"
herein.
A "90 Day Delinquent FHA Loan" is a Loan with
respect to which four consecutive Monthly
Payments have not been received by the
Servicer as of the last day of the related
Due Period unless, on or prior to the last
day of the Due Period in which the fourth
Monthly Payment is due, the Servicer has
received from the related Mortgagor an amount
at least equal to one unpaid Monthly Payment.
An "FHA Payment" is any amount paid by the
FHA pursuant to a Claim with respect to a 90
Day Delinquent FHA Loan.
FHA Premium Account............... The Trustee will establish with itself a
separate account (an "FHA Premium Account")
to reimburse the Claims Administrator or
Certificate Guaranty Insurer for the payment
to the FHA of the annual insurance premium
(the "FHA Insurance Premium") on each FHA
Loan. The FHA Insurance Premium is an annual
premium equal to 0.5% of the original
principal balance of each FHA Loan. If the
related Mortgagor pays the FHA Insurance
Premium in addition to the Monthly Payment,
any payment of the FHA Insurance Premium
received during a Due Period will be
deposited in the FHA Premium Account on the
related Remittance Date by the Trustee from
the related Certificate Account. In certain
states, the Servicer is prohibited from
directly collecting the FHA Insurance Premium
from the Mortgagor. With respect to FHA Loans
secured by Mortgaged Properties located in
such states, the Servicer will cause to be
deposited in the FHA Premium Account a
specified percentage of each scheduled
interest payment. Since a Mortgagor pays
interest on the declining principal balance
of the related FHA Loan and the FHA Insurance
Premium is based upon the original principal
balance of the FHA Loan, the amount of
interest allocated to the FHA Premium Account
may be more or less than the amount of the
related FHA Insurance Premium. The Servicer
has agreed to satisfy any resulting shortfall
from its own funds.
The Pools
General ......................... Unless otherwise noted, all statistical
percentages in this Prospectus Supplement
concerning the Loans are measured by the
aggregate principal balances of the related
Pool of Loans described herein at the close
of business on the Cut-Off Date and all
dollar amounts are based on the principal
balances of such Loans at the close of
business on the Cut-Off Date. The Loans that
will comprise Pool I and Pool II as of the
Closing Date are referred to herein as the
"Initial Pool I Home Equity Loans" and the
"Initial Pool II Home Equity Loans,"
respectively, and collectively, as the
"Initial Home Equity Loans." The Loans that
will comprise Pool III as of the Closing Date
are referred to herein as the "Initial Home
Improvement Loans." The Loans that will
comprise Pool IV as of the Closing Date are
referred to herein as the "Initial
Multifamily Loans" and, together with the
Initial Home Equity Loans and the Initial
Home Improvement Loans, the "Initial Loans."
Pool I and Pool II............... The Pool I and Pool II Home Equity Loans will
consist of mortgages, deeds of trust or other
security instruments (the "Home Equity
Mortgages" or "Mortgages"), and the related
promissory notes (the "Home Equity Mortgage
Notes" or "Mortgage Notes") primarily secured
by one- to four-family residences, units in
planned unit developments ("PUDs") and units
in condominium developments (the "Home Equity
Mortgaged Properties" or "Mortgaged
Properties").
As stated above, the Agreement will provide
that Subsequent Home Equity Loans may be
purchased by the Trust from the Originators
from time to time on or before the close of
business on _______, 1997 from funds on
deposit in the Pre-Funding Account allocated
to Pools I and II. Any Subsequent Home Equity
Loan so acquired will have been originated
and underwritten, or purchased and
re-underwritten, by one of the Originators,
substantially in accordance with the
Originators' underwriting criteria described
in the Prospectus under the caption "The
Single Family Loan Lending
Program--Underwriting Criteria." Each
Subsequent Home Equity Loan will be assigned
to either Pool I or Pool II, depending upon
whether it bears interest at a fixed rate or
an adjustable rate. The purchase price for
each Subsequent Home Equity Loan will be no
greater than its unpaid principal balance as
of the last day of the month preceding the
month in which it is purchased by the Trust
(each such date, a "Subsequent Cut-Off
Date"). The Agreement will provide that the
Pool I and Pool II Home Equity Loans,
following the conveyance of any Subsequent
Home Equity Loans to the appropriate Pool,
must, in the aggregate, conform to certain
specified characteristics. See "The
Agreement-- Representations and Warranties"
in the Prospectus.
No more than approximately __% of the Initial
Pool I Home Equity Loans will be secured by
Home Equity Mortgaged Properties located in
__________. Approximately __% of the Initial
Pool II Home Equity Loans will be secured by
Home Equity Mortgaged Properties located in
________. No more than approximately __% of
the Initial Pool I Home Equity Loans and __%
of the Initial Pool II Home Equity Loans will
be secured by Home Equity Mortgaged
Properties located in any other state. Based
on representations made by the obligor on a
Home Equity Mortgage Note (the "Home Equity
Mortgagor" or the "Mortgagor"), all of the
Initial Home Equity Loans will be secured by
one- to four-family residences, approximately
__% and __% of the Initial Pool I and Initial
Pool II Home Equity Loans, respectively, will
be secured by vacation homes, secondary
residences, or investment properties, less
than __% and less than __% of the Initial
Pool I and Initial Pool II Home Equity Loans,
respectively, will be secured by individual
units in low rise condominiums, approximately
__% and __% of the Initial Pool I and Initial
Pool II Home Equity Loans, respectively, will
be secured by two-, three- or four-family
houses, and no Initial Home Equity Loan will
be secured by individual units of other types
including high rise condominiums and
mixed-use buildings. No Initial Home Equity
Loan will be secured by a mobile home or a
cooperative residence.
No less than approximately __% and __% of the
Initial Pool I and Initial Pool II Home
Equity Loans, respectively, will constitute
first mortgage liens on the related Home
Equity Mortgaged Property and the remainder
of the Initial Pool I and Initial Pool II
Home Equity Loans will constitute second
mortgage liens on the related Home Equity
Mortgaged Property.
The "Combined Loan-to-Value Ratio" of a Home
Equity Loan is the ratio, expressed as a
percentage, determined by dividing (x) the
sum of the original principal balance of the
Home Equity Loan (less the amount, if any, of
the premium for credit life insurance) plus
the then-current principal balance of the
related first lien, if any, by (y) the value
of the Home Equity Mortgaged Property, based
upon the appraisal or valuation made at the
time of origination of the Home Equity Loan.
Based upon the original principal balances of
the Initial Home Equity Loans, no more than
approximately __% and __% of the Initial Pool
I and Initial Pool II Home Equity Loans,
respectively, will have a Combined
Loan-to-Value Ratio exceeding [100%]. The
weighted average Combined Loan-to-Value
Ratio, based upon appraisals or valuations
made at the times of origination of the
Initial Pool I and Initial Pool II Home
Equity Loans, will be no more than
approximately __% and __%, respectively. The
Initial Home Equity Loans are not insured or
guaranteed by any governmental entity.
The Home Equity Loans, other than Balloon
Home Equity Loans discussed below, will
provide for a schedule of payments which will
be, if timely paid, sufficient to amortize
fully the principal balance of the Initial
Home Equity Loan on or before its maturity
date. The Initial Home Equity Loans will be
either (i) "simple interest" loans, which
means that payments are applied as they are
received first to accrued interest, then to
principal or (ii) "actuarial" loans, which
means that payments received either earlier
or later (other than delinquent) than the
scheduled due dates of such Initial Home
Equity Loans will not affect the amortization
schedule or the relative application of such
payments to principal and interest. The Pool
I Home Equity Loans will bear interest at
fixed rates (each, a "Pool I Mortgage
Interest Rate").
The Pool I Home Equity Loans will bear
interest at fixed rates which, as of the
Cut-off Date, ranged from approximately __%
to __% per annum. The Pool II Home Equity
Loans will bear interest at adjustable rates
which, as of the Cut-Off Date, range from
____% to _____% per annum (each, a "Pool II
Mortgage Interest Rate") which will adjust on
the date set forth in the related Mortgage
Note. For each Pool II Home Equity Loan, the
related Pool II Mortgage Interest Rate will
change initially after the period set forth
in the related Mortgage Note and periodically
thereafter. Each date on which a Pool II
Mortgage Interest Rate changes is referred to
as the "Change Date" for the related Pool II
Home Equity Loan. No more than approximately
___% of the Pool II Home Equity Loans will
have their first Change Date occurring
approximately 24 months after origination and
no more than approximately _____% of the Pool
II Home Equity Loans will have their first
Change Date occurring approximately 36 months
after origination. No more than ___% of the
Pool II Home Equity Loans will have their
first Change Date occurring approximately 48
months after origination. The remainder of
the Pool II Home Equity Loans will have their
first Change Date occurring no later than 12
months after origination.
The Pool II Mortgage Interest Rate relating
to at least ____% of the Pool II Home Equity
Loans will adjust on each applicable Change
Date to equal the sum of (i) the applicable
London Interbank Offered Rate for U.S. dollar
deposits (the "LIBOR Index") and (ii) the
number of basis points set forth in the
related Mortgage Note (the "Gross Margin"),
subject to rounding and to the effects of the
Periodic Rate Cap, the applicable Lifetime
Cap and the applicable Lifetime Floor. The
Pool II Mortgage Interest Rate relating to
the remainder of the Pool II Home Equity
Loans will adjust on each Change Date to
equal the sum of (i) the applicable One-Year
Constant Maturity Treasury Index ("CMT" or
the "Treasury Index") as published by the
Federal Reserve Board Statistical Release No.
H.15, and (ii) the related Gross Margin,
subject to rounding and to the effects of the
Periodic Rate Cap, the applicable Lifetime
Cap and the applicable Lifetime Floor.
The Gross Margins for the Pool II Home Equity
Loans will range from ____% to ____%. The
weighted average Gross Margin of the Pool II
Home Equity Loans will be approximately __%.
The "Periodic Rate Cap" limits changes in the
Pool II Mortgage Interest Rate for each Pool
II Home Equity Loan on each Change Date to
the Periodic Rate Cap as set forth in the
related Mortgage Note. The Lifetime Caps of
the Pool II Home Equity Loans will range from
approximately ___% to ___%. The weighted
average Lifetime Cap of the Pool II Home
Equity Loans will be approximately ___%. The
Lifetime Floors of the Pool II Home Equity
Loans will range from approximately __% to
__%. The weighted average Lifetime Floor of
the Pool II Home Equity Loans will be
approximately ___%.
The weighted average Pool I Mortgage Interest
Rate of the Initial Pool I Home Equity Loans
will be approximately _____%. The weighted
average current Pool II Mortgage Interest
Rate of the Initial Pool II Home Equity Loans
will be approximately _____%. The lowest
principal balances of any Initial Pool I and
Initial Pool II Home Equity Loan as of the
Cut-Off Date will be approximately $_____ and
$______, respectively, and the highest will
be approximately $_______ and $_______,
respectively. As of the Cut-Off Date, the
average principal balances of the Initial
Pool I and Initial Pool II Home Equity Loans
will be approximately $______ and $______,
respectively. Initial Home Equity Loans not
originated by an Originator or having
original principal balances less than or
equal to $______ may not be covered by title
insurance policies. As of the Cut-Off Date,
the weighted average remaining terms to
stated maturity of the Initial Pool I and
Initial Pool II Home Equity Loans will be
approximately ___ months and ___ months,
respectively. The weighted average terms to
stated maturity of the Initial Pool I and
Initial Pool II Home Equity Loans at
origination will be approximately ___ months
and ___ months, respectively.
Less than approximately __% and __% of the
Initial Pool I and Initial Pool II Home
Equity Loans, respectively, will provide for
a stated maturity of less than the period of
time of the corresponding amortization
schedule ("Balloon Loans). As a result, upon
the maturity of a Balloon Loan, the Home
Equity Mortgagor will be required to make a
final payment which will be substantially
larger than such Home Equity Mortgagor's
previous monthly payments. See "Risk
Factors--Nature of the Security" in the
Prospectus.
Pool III......................... The Home Improvement Loans will consist of
fixed rate home improvement mortgages (the
"Home Improvement Mortgages") and the related
promissory notes, retail installment
contracts or obligations, or sales agreements
(the "Home Improvement Mortgage Notes" or
"Mortgage Notes") primarily secured by one-
to four-family residences, units in planned
unit developments ("PUDs") and units in
condominium developments (the "Home
Improvement Mortgaged Properties" or
"Mortgaged Properties").
As stated above, the Agreement will provide
that Subsequent Home Improvement Loans may be
purchased by the Trust from the Originators
from time to time on or before the close of
business on _______, 1997 from funds on
deposit in the Pre- Funding Account allocated
to Pool III. Any Subsequent Home Improvement
Loan so acquired (including Dealer Loans, as
defined herein under "Lending Programs--The
Home Improvement Lending Program--Dealer
Loans") will have been originated and
underwritten, or purchased and re-
underwritten, by one of the Originators,
substantially in accordance with the
Originators' underwriting criteria described
herein under the caption "Lending
Programs--The Home Improvement Lending
Program--FHA Loans--Title I Underwriting
Requirements," in connection with Subsequent
Home Improvement Loans that are FHA Loans,
and "Lending Programs--The Home Improvement
Lending Program--Conventional Home
Improvement Loans--Underwriting Criteria," in
connection with Subsequent Home Improvement
Loans that are Conventional Home Improvement
Loans. The purchase price for each Subsequent
Home Improvement Loan will be no greater than
its unpaid principal balance as of the
related Subsequent Cut-Off Date. The
Agreement will provide that the Home
Improvement Loans, following the conveyance
of any Subsequent Home Improvement Loans to
Pool III, must, in the aggregate, conform to
certain specified characteristics. See "The
Agreement-- Representations and Warranties"
in the Prospectus.
Approximately __% and __% of the Initial Home
Improvement Loans will be FHA Loans and
Conventional Home Improvement Loans,
respectively. The Initial Home Improvement
Loans will have been originated and
underwritten, or purchased and
re-underwritten by one of the Originators
substantially in accordance with the
Originators' underwriting criteria described
herein under the caption "Lending
Programs--The Home Improvement Lending
Program--FHA Loans--Title I Underwriting
Requirements," in connection with FHA Loans,
and "Lending Programs--The Home Improvement
Lending Program--Conventional Home
Improvement Loans--Underwriting Criteria," in
connection with Conventional Home Improvement
Loans.
Approximately __% of the Initial Home
Improvement Loans will be secured by Home
Improvement Mortgaged Properties located in
__________. No more than approximately __% of
the Initial Home Improvement Loans will be
secured by Home Improvement Mortgaged
Properties located in any other state. Based
on representations made by the mortgagor on a
Home Improvement Mortgage Note (the "Home
Improvement Mortgagor" or "Mortgagor"), all
of the Initial Home Improvement Loans will be
secured by one- to four-family residences,
approximately __% of the Initial Home
Improvement Loans will be secured by vacation
homes, secondary residences, or investment
properties, less than __% of the Initial Home
Improvement Loans will be secured by
individual units in low rise condominiums,
approximately __% of the Initial Home
Improvement Loans will be secured by two-,
three- or four-family houses, and no Initial
Home Improvement Loan will be secured by
individual units of other types including
high rise condominiums and mixed-use
buildings. No Initial Home Improvement Loan
will be secured by a mobile home or a
cooperative residence.
Approximately __% of the Initial Home
Improvement Loans will be secured by first
mortgage liens on the related Home
Improvement Mortgaged Property, no more than
approximately __% of the Initial Home
Improvement Loans will be secured by second
mortgage liens on the related Home
Improvement Mortgaged Property and the
remainder of the Initial Home Improvement
Loans will be secured by more junior mortgage
liens on the related Home Improvement
Mortgaged Property.
The FHA Loans are insured by the FHA to the
extent described herein. The Conventional
Home Improvement Loans are not insured by any
governmental entity.
The Initial Home Improvement Loans will
provide for a schedule of payments which will
be, if timely paid, sufficient to amortize
fully the principal balance of the Initial
Home Improvement Loan on or before its
maturity date. The Initial Home Improvement
Loans will be "simple interest" loans.
However, with respect to FHA Loans secured by
Mortgaged Properties located in states where
the Servicer collects the FHA Insurance
Premium directly from the related Mortgagor,
payments are applied to the FHA Insurance
Premium prior to accrued interest. The Home
Improvement Loans will bear interest at fixed
rates (each, a "Pool III Home Improvement
Interest Rate").
The weighted average Pool III Home
Improvement Interest Rate of the Initial Home
Improvement Loans will be approximately
_____%. The lowest principal balances of any
Initial Home Improvement Loan as of the
Cut-Off Date will be approximately $_____,
and the highest will be approximately
$______. As of the Cut-Off Date, the average
principal balance of the Initial Home
Improvement Loans will be approximately
$______. As of the Cut-Off Date, the weighted
average remaining term to stated maturity of
the Initial Home Improvement Loans will be
approximately ___ months. The weighted
average term to stated maturity of the
Initial Home Improvement Loans at origination
will be approximately ___ months. Each Home
Improvement Loan that is a first lien is
covered by a title insurance policy.
Pool IV.......................... The Multifamily Loans will consist of
mortgages, deeds of trust or other security
instruments (the "Multifamily Mortgages"),
and the related promissory notes (the
"Multifamily Mortgage Notes") primarily
secured by five or more unit residential or
mixed-use residential and commercial
properties (the "Multifamily Mortgaged
Properties" or "Mortgaged Properties").
As stated above, the Agreement will provide
that Subsequent Multifamily Loans may be
purchased by the Trust from the Originators
from time to time on or before the close of
business on _______, 1997 from funds on
deposit in the Pre-Funding Account allocated
to Pool IV. Any Subsequent Multifamily Loan
so acquired will have been originated and
underwritten, or purchased and re-
underwritten, by one of the Originators,
substantially in accordance with the
Originators' underwriting criteria described
under "Lending Programs--The Multifamily
Lending Program" herein. The purchase price
for each Subsequent Multifamily Loan will be
no greater than its unpaid principal balance
as of the related Subsequent Cut- Off Date.
The Agreement will provide that the
Multifamily Loans, following the conveyance
of any Subsequent Multifamily Loans to Pool
IV, must, in the aggregate, conform to
certain specified characteristics. See "The
Agreement-- Representations and Warranties"
in the Prospectus.
The Initial Multifamily Loans were originated
and underwritten, or purchased and
re-underwritten, by one of the Originators,
substantially in accordance with the
Originators' underwriting criteria described
under "Lending Programs--The Multifamily
Lending Program" herein.
No more than approximately __% of the Initial
Multifamily Loans will be secured by
Multifamily Mortgaged Properties located in
__________. No more than approximately __% of
the Initial Multifamily Loans will be secured
by Multifamily Mortgaged Properties located
in any other state. Based on representations
made by the obligor on a Multifamily Mortgage
Note (the "Multifamily Mortgagor" or
"Mortgagor"), all of the Initial Multifamily
Loans will be secured by five or more unit
residential or mixed-use residential and
commercial properties.
All of the Initial Multifamily Loans will
constitute first mortgage liens on the
related Multifamily Mortgaged Property.
No Initial Multifamily Loan will have a
Combined Loan- to-Value Ratio exceeding
approximately __%. The Initial Multifamily
Loans will not be insured or guaranteed by
any governmental entity.
The Initial Multifamily Loans will provide
for a schedule of payments which will be, if
timely paid, sufficient to amortize fully the
principal balance of the Initial Multifamily
Loan on or before its maturity date. The
Initial Multifamily Loans will be "simple
interest" loans. The Initial Multifamily
Loans will bear interest at fixed rates
(each, a "Multifamily Mortgage Interest
Rate").
The weighted average Multifamily Mortgage
Interest Rate of the Initial Multifamily
Loans will be approximately _____%. The
lowest principal balance of any Initial
Multifamily Loan as of the Cut-Off Date will
be approximately $______, and the highest
will be approximately $_______. The average
principal balance of the Initial Multifamily
Loans will be approximately $_______. All
Initial Multifamily Loans will be covered by
title insurance policies. The weighted
average remaining term to stated maturity of
the Initial Multifamily Loans will be
approximately ___ months. The weighted
average term to stated maturity of the
Initial Multifamily Loans at origination will
be approximately ___ months.
Each Multifamily Loan contains provisions
requiring the related Mortgagor to pay a
penalty in connection with certain
prepayments made within three or five years,
depending on the terms of such Multifamily
Loan, of its origination.
Servicing of the Loans ........... The Servicer will serve as master servicer
for the Loans in accordance with the
Agreement. The Servicer may act through
subservicers, including the Originators or
other affiliates of the Servicer.
Monthly Advances ..................The Servicer is required to remit to the
Trustee no later than the day of each month
which is at least three business days prior
to the Remittance Date and is in no case
earlier than the seventh business day of such
month (the "Determination Date") the amount
(a "Monthly Advance"), if any, by which (a)
the sum of (x) 30 days' interest (or, with
respect to the Class A-7 Certificates, the
actual number of days since the last
Remittance Date up to but not including the
upcoming Remittance Date) at (i) the weighted
average Class A-1, Class A-2, Class A-3,
Class A-4, Class A-5 and Class A-6 Adjusted
Mortgage Loan Remittance Rates on the
outstanding Principal Balance of the Pool I
Certificates, (ii) the Class A-7 Adjusted
Mortgage Loan Remittance Rate on the
outstanding principal balance of the Pool II
Certificates, (iii) the Class A-8 Adjusted
Mortgage Loan Remittance Rate on the
outstanding principal balance of the Pool III
Certificates and (iv) Class A-9 Adjusted
Mortgage Loan Remittance Rates on the
outstanding principal balance of the Pool IV
Certificates, in each case, immediately prior
to the related Remittance Date and (y) the
Monthly Excess Spread (as defined herein
under "Description of the Certificates--
Spread Amount"), if any, for the related
Remittance Date relating to the Pool I, Pool
II, Pool III and Pool IV Loans, respectively,
exceeds (b) the amount received by the
Servicer in respect of interest on the Pool
I, Pool II, Pool III and Pool IV Loans,
respectively, as of the related Record Date
(and with respect to the Remittance Dates in
_______, _______ and _______, 1997, the sum
of (i) all funds to be transferred to the
applicable Certificate Account from the
Capitalized Interest Account for such
Remittance Date and (ii) certain investment
earnings on amounts in the Pre-Funding
Account for the applicable Remittance Date).
Such advances by the Servicer are
reimbursable in the first instance from late
collections of interest including amounts
received in connection with the liquidation
of defaulted Loans ("Liquidation Proceeds"),
amounts paid by any insurer pursuant to any
insurance policy covering a Loan, Mortgaged
Property or REO Property ("Insurance
Proceeds"), FHA Payments and proceeds
received by the Servicer in connection with
condemnation, eminent domain or a release of
lien ("Released Mortgaged Property Proceeds")
collected with respect to the related Loan as
to which the advances were made, and any
other amount that otherwise would be
distributed on the Class R Certificates.
Monthly Advances will not cover any
Certificateholders' LIBOR Interest Carryover
allocated to the Class A-7 Certificates. The
Servicer is not required to make Monthly
Advances which it determines, in good faith,
would be nonrecoverable from amounts received
in respect of the Loans.
The "Class A-1 Adjusted Mortgage Loan
Remittance Rate," the "Class A-2 Adjusted
Mortgage Loan Remittance Rate," the "Class
A-3 Adjusted Mortgage Loan Remittance Rate,"
the "Class A-4 Adjusted Mortgage Loan
Remittance Rate," the "Class A-5 Adjusted
Mortgage Loan Remittance Rate," the "Class
A-6 Adjusted Mortgage Loan Remittance Rate,"
the "Class A-7 Adjusted Mortgage Loan
Remittance Rate," the "Class A-8 Adjusted
Mortgage Loan Remittance Rate" and the "Class
A-9 Adjusted Mortgage Loan Remittance Rate"
will equal the sum of the Class A-1, Class
A-2, Class A-3, Class A-4, Class A-5, Class
A-6, Class A-7, Class A-8 or Class A-9
Pass-Through Rate, as the case may be, and a
rate used to determine certain expenses of
the Trust. Certain of the Loans in each Pool
may bear interest at a rate below the
Adjusted Mortgage Loan Remittance Rate for
the related Class. Any such Loan will be sold
to the Trust at a discount so as to create,
for each such Loan, a mortgage interest rate
that, when applied to the purchase price paid
by the Trust for such Loan, will at least
equal the related Adjusted Mortgage Loan
Remittance Rate.
Compensating Interest............. Not later than each Determination Date, with
respect to each Loan to which the Servicer
received a principal payment in full in
advance of the final scheduled due date (a
"Principal Prepayment") or received a
principal payment that is in excess of five
times the scheduled monthly payment due, but
which was not intended by the Mortgagor to
satisfy the Loan in full or to cure a
delinquency (a "Curtailment") during the
related Due Period, the Servicer is required
to remit to the Trustee from amounts
otherwise payable to the Servicer as
servicing compensation (including the
Contingency Fee), an amount ("Compensating
Interest") equal to any excess of (a) 30
days' interest (or, with respect to the Class
A-7 Certificates, the actual number of days
since the last Remittance Date up to but not
including the upcoming Remittance Date) on
the principal balance of each such Loan as of
the beginning of the related Due Period, at
the weighted average Class A-1, Class A-2,
Class A-3, Class A-4, Class A-5 and Class A-6
Adjusted Mortgage Loan Remittance Rates in
the case of a Pool I Home Equity Loan, the
Class A-7 Adjusted Mortgage Loan Remittance
Rate in the case of a Pool II Home Equity
Loan, the Class A-8 Adjusted Mortgage Loan
Remittance Rate in the case of a Pool III
Home Improvement Loan and the Class A- 9
Adjusted Mortgage Loan Remittance Rates, in
the case of a Pool IV Multifamily Loan, as
the case may be, applicable to the Remittance
Date on which the Compensating Interest will
be distributed over (b) the amount of
interest actually received on the related
Loan during such Due Period.
Servicing and Contingency Fees ... The Servicer is entitled to a servicing fee
of _____% per annum of the principal balance
of each Loan (the "Servicing Fee"), and a
contingency fee of _____% per annum of the
principal balance of each Loan (the
"Contingency Fee"), each calculated and
payable monthly from the interest portion of
scheduled monthly payments, Liquidation
Proceeds and certain other Proceeds
collected.
Rating............................ It is a condition to the issuance of the
Class A Certificates that each Class be rated
"AAA" by [Standard & Poor's Ratings Services,
a division of The McGraw Hill Companies, Inc.
("S&P")] and "Aaa" by [Moody's Investors
Service, Inc. ("Moody's")]. The ratings
assigned by S&P and Moody's to the Class A
Certificates are based, in large part, on the
creditworthiness of Certificate Guaranty
Insurer and the Certificate Guaranty
Insurance Policies. A security rating is not
a recommendation to buy, sell or hold
securities and may be subject to revision or
withdrawal at any time. No person is
obligated to maintain the rating on any Class
of Class A Certificates. The ratings of the
Class A-7 Certificates by S&P and Moody's do
not address the likelihood of the payment of
the amount of any Certificateholders' LIBOR
Interest Carryover. See "Rating of the Class
A Certificates" herein.
Optional Termination by the
Servicer........................ On any Remittance Date from and after the
Remittance Date on which the aggregate
principal balances of the Loans are less than
10% of the sum of (i) the aggregate principal
balances of the Initial Home Equity Loans,
the Initial Home Improvement Loans and the
Initial Multifamily Loans (collectively, the
"Initial Loans") as of the Cut-Off Date (the
"Original Pool Principal Balance") and (ii)
the original Pre-Funded Amount (such date,
the "Optional Servicer Termination Date"),
the Servicer may, at its option, and in the
absence of the exercise thereof by the
Servicer, the Certificate Guaranty Insurer
may, at its option, purchase, on the next
succeeding Remittance Date, all of the Loans
and any related Mortgaged Property title to
which has been acquired in foreclosure or by
deed in lieu of foreclosure (an "REO
Property") at a price set forth in the
Agreement (the "Termination Price") at least
equal to the sum of (x) 100% of the Principal
Balances of the Loans, including those
evidenced by REO Properties, and including
the portion of the principal balance of each
90 Day Delinquent FHA Loan for which the
Certificateholders have not received payment
and for which a Claim was submitted to the
FHA, and (y) 30 days' interest (or, with
respect to the Class A- 7 Certificates, the
actual number of days from the last
Remittance Date to but not including the
upcoming Remittance Date) thereon at the then
applicable weighted average Class A-1, Class
A-2, Class A-3, Class A-4, Class A-5 and
Class A-6 Pass-Through Rates in the case of
the Pool I Home Equity Loans, the Class A-7
Pass-Through Rate in the case of the Pool II
Home Equity Loans, the Class A-8 Pass-Through
Rate in the case of the Pool III Home
Improvement Loans and the Class A-9
Pass-Through Rates in the case of the Pool IV
Multifamily Loans, plus an amount equal to
the interest portion of any unreimbursed
Insured Payments made by the Certificate
Guaranty Insurer with respect to the
applicable Pool of Loans. See "The Agreement"
herein and in the Prospectus. As described
above, after the Optional Service Termination
Date, the margin used in calculating the
Class A-7 Pass-Through Rate will increase
____%. See "Summary of Terms--Securities
Offered."
Optional Termination by
Certificate Guaranty Insurer...... On and after the date on which the Maximum
Subordinated Amount is zero (the "Cross-Over
Date"), on any Remittance Date on which Loans
with aggregate principal balances as of the
Cut-Off Date equal to or exceeding 25% or
more of the sum of (i) the Original Pool
Principal Balance and (ii) the original
Pre-Funded Amount, if any, have become
Liquidated Loans, Certificate Guaranty
Insurer may purchase all of the Loans and any
related REO Properties in respect thereof at
a price equal to the sum of the Termination
Prices for all Pools and the outstanding and
unpaid fees and expenses of the Trustee and
the Servicer. See "The Agreement" herein and
in the Prospectus.
REMIC Election and Tax Status .... For Federal income tax purposes, an election
will be made to treat certain assets of the
Trust as a real estate mortgage investment
conduit ("REMIC"). Each Class of Class A
Certificates will constitute regular
interests in the REMIC and the Class R
Certificates will constitute the residual
interest in the REMIC. See "Federal Income
Tax Considerations" herein and "Federal
Income Tax Consequences" in the Prospectus.
ERISA Considerations...............[As described under "ERISA Considerations"
herein, the Class A Certificates may be
purchased by a pension or other employee
benefit plan subject to the Employee
Retirement Income Security Act of 1974, as
amended ("ERISA"), or by individual
retirement accounts or Keogh plans covering
only a sole proprietor or partner which are
not subject to ERISA but are subject to
Section 4975 of the Code ("Plans"), pursuant
to certain exemptions from potential
prohibited transaction rules of ERISA which
prohibit a broad range of transactions
involving Plan assets and persons having
certain specified relationships to a Plan and
related excise tax provisions of Section 4975
of the Code. One such exemption is Prohibited
Transaction Exemption _____, __ Fed. Reg.
______ (______ __, 199_) (the "Exemption"),
which provides an exemption for transactions
involving the purchase, holding or transfer
of certain asset backed certificates by
Plans. See "ERISA Considerations" herein and
in the Prospectus.]
[Legal Investment Considerations...No Class of Class A Certificates will
constitute "mortgage related securities"
under the Secondary Mortgage Market
Enhancement Act of 1984 ("SMMEA"). Investors
should consult their own legal advisers in
determining whether and the extent to which a
Class of Class A Certificates constitutes
legal investments for such investors. See
"Legal Investment Considerations" herein.]
Registration of the Certificates...The Class A Certificates will be represented
by global certificates registered in the name
of Cede & Co. ("Cede"), as the nominee of The
Depository Trust Company ("DTC"). No Class A
Certificateholder will be entitled to receive
definitive certificates ("Definitive Class A
Certificates") representing such person's
interest, except in the event that Definitive
Class A Certificates are issued under the
limited circumstances described herein. All
references herein to "Class A-1, Class A-2,
Class A-3, Class A-4, Class A-5, Class A-6,
Class A-7, Class A-8 and Class A-9
Certificateholders" or "Holders" will reflect
the rights of the beneficial owners of Class
A-1, Class A-2, Class A-3, Class A-4, Class
A-5, Class A-6, Class A-7, Class A-8 and
Class A-9 Certificates, as such rights may be
exercised through DTC and Participants except
as otherwise specified herein. See "Risk
Factors-- Book-Entry Registration" in the
Prospectus and "Description of the
Certificates--Book-Entry Registration of
Class A Certificates" herein.
<PAGE>
RISK FACTORS
Prospective Certificateholders should consider, in addition to the factors
described under "Risk Factors" in the Prospectus, the following factors.
DEPENDENCE ON CLAIMS ADMINISTRATOR, REPRESENTATIVE, AND SERVICER FOR MAKING FHA
CLAIMS AND PAYING THE FHA PAYMENTS
The Trustee, the Co-Trustee and the Certificateholders are dependent on the
Claims Administrator to (1) assure that the FHA Loans will be insured by the
FHA, (2) make Claims on 90 Day Delinquent FHA Loans and (3) remit all FHA
Payments received from the FHA to the Trustee in accordance with the terms of
the Agreement. See "Description of the Certificates--Obligations of The Claims
Administrator" herein.
LIMITATIONS ON FHA INSURANCE
The FHA Loans are covered by FHA insurance to the extent described herein. The
Agreement provides that if an FHA Loan becomes a 90 Day Delinquent FHA Loan and
if sufficient coverage is available in the related Reserve Amount, the Claims
Administrator may, in its sole option, file a Claim with the FHA with respect to
such 90 Day Delinquent FHA Loan. If such a Claim is submitted and assuming the
Representative, the Originators and the Claims Administrator comply with the
provisions described herein, the FHA will pay with respect to such 90 Day
Delinquent FHA Loan the amount set forth under "The Title I Loan
Program--Insurance Claims Procedures for Title I Loans" herein regardless of
whether, in the case of FHA Loans, the related Mortgaged Property has available
equity over and above all liens on such property.
The availability of FHA insurance following a default on an FHA Loan is subject
to a number of conditions, including strict compliance with FHA regulations in
originating and servicing the FHA Loan and limits on the aggregate insurance
coverage available with respect to all FHA Title I loans then owned and reported
for FHA insurance by the Co-Trustee. Although the Claims Administrator is an
FHA-approved lender and believes, and represents and warrants in the Agreement,
that it has complied with FHA regulations, such regulations are susceptible to
substantial interpretation. The Claims Administrator is not required to obtain,
and has not obtained, approval from the FHA of its origination and servicing
practices. Failure to comply with FHA regulations may result in a denial of FHA
insurance claims, and there can be no assurance that the FHA's enforcement of
its regulations will not change in the future. In addition, any Claim paid by
the FHA will cover only 90% of the sum of the unpaid principal (determined on
the actuarial basis) on the FHA Loan, a portion of the unpaid interest and
certain other liquidation costs.
Prior to the transfer of the FHA Loans to the Co-Trustee, the FHA Loans
will be insured by the FHA, to the extent described herein, under the related
Originator's FHA contract of insurance. In connection with the transfer of the
FHA Loans from the Originators to the Co-Trustee, the Originators also will file
with the FHA all documents necessary to effect the transfer of the FHA insurance
reserves applicable to the FHA Loans to the Co-Trustee's FHA contract of
insurance.
Based upon information provided by the FHA, The Money Store Inc. believes
that upon the transfer referred to above and after the Funding Period, the FHA
insurance available to the Co-Trustee will be equal to at least (A) 10% of the
principal balance of the FHA Loans as of the Cut-Off Date or Subsequent Cut-Off
Date, as the case may be; or (B) thereafter, 10% of the principal balance of all
Title I loans originated or purchased and currently reported for FHA insurance
by the Co-Trustee, less amounts for annual reductions as described below and for
insurance claims previously paid to the Co-Trustee by the FHA, including
payments in respect of loans other than the FHA Loans, and increased by an
amount equal to 10% of the lesser of the original principal balance or the
purchase price paid for Title I loans subsequently originated or purchased of
record by the Co-Trustee.
FHA Claims paid to the Co-Trustee by the FHA with respect to Title I loans other
than the FHA Loans may affect the total amount of the Reserve Amount.
Since the adequacy of the Co-Trustee's Reserve Amount is dependent upon future
events, including the annual reductions in the Reserve Amount and the reductions
for the payment of claims, no assurance can be given that the Reserve Amount is
or will be adequate to cover 90% of all potential losses on the FHA Loans.
In connection with the FHA Loans, pursuant to FHA underwriting criteria in
effect at the time substantially all the FHA Loans were originated, there was no
requirement that the Mortgaged Property have any available equity over and above
the total of all liens on such property, including the Title I loan. However,
loans originated between October 18, 1991 and August 15, 1994 that exceeded
$15,000 were limited to a maximum encumbrance of 100% loan to value of all liens
on such property, including the Title I loan, and non-owner occupied property
loans originated after October 18, 1991 were limited to a maximum encumbrance of
100% loan to value of all liens on such property, including the Title I loan.
See "The Trusts--FHA Loans" in the Prospectus and "Lending Programs--The Home
Improvement Lending Program-- FHA Loans--The Title I Loan Program" herein.
MULTIFAMILY LOANS
Multifamily lending is generally viewed as exposing the lender to a greater risk
of loss than single family residential lending. Owners of multifamily
residential properties rely on monthly lease payments from tenants to pay for
maintenance and other operating expenses of such properties, to fund capital
improvements and to service any mortgage loan and any other debt that may be
secured by such properties. Various factors, many of which are beyond the
control of the owner or operator of such a property, may affect the economic
viability of that property.
Changes in payment patterns by tenants may result from a variety of social,
legal and economic factors. Economic factors including the rate of inflation,
unemployment levels and relative rates offered for various types of housing may
be reflected in changes in payment patterns including increased risks of
defaults by tenants and higher vacancy rates. Adverse economic conditions,
either local or national, may limit the amount of rent that can be charged and
may result in a reduction in timely lease payments or a reduction in occupancy
levels. Occupancy and rent levels may also be affected by construction of
additional housing units, competition and local politics, including rent
stabilization or rent control laws and policies. In addition, the level of
mortgage interest rates may encourage tenants to purchase single family housing.
The Money Store Inc. is unable to determine and has no basis to predict whether,
or to what extent, economic, legal or social factors will affect future rental
or payment patterns.
The location and construction quality of a particular building may affect the
occupancy level as well as the rents that may be charged for individual units.
The characteristics of a neighborhood may change over time or in relation to
newer developments. The effects of poor construction quality will increase over
time in the form of increased maintenance and capital improvements. Even good
construction will deteriorate over time if adequate maintenance is not performed
in a timely fashion.
Many of the foregoing conditions may not have been present or significant on the
Closing Date, and certain of those conditions may change.
[ADEQUACY OF THE MORTGAGED PROPERTIES AS SECURITY FOR THE LOANS
No more than approximately ____% and ___% of the Initial Pool I and Initial Pool
II Home Equity Loans, respectively, will have a Combined Loan-to-Value Ratio
exceeding 100%. The Mortgaged Properties are unlikely to provide adequate
security for the Loans in those Pools with Combined Loan-to-Value Ratios in
excess of 100%. Even assuming that a Mortgaged Property provides adequate
security for the related Loan, substantial delays could be encountered in
connection with the liquidation of a Loan that would result in current
shortfalls in payments to Certificateholders to the extent such shortfalls are
not covered by the credit enhancement described herein. In addition, liquidation
expenses relating to any liquidated Loan (such as legal fees, real estate taxes,
and maintenance and preservation expenses) will reduce the liquidation proceeds
otherwise available for payment to Certificateholders. In the event that any
Mortgaged Property fails to provide adequate security for the related Loan, any
losses in connection with such Loan will be borne by Certificateholders as
described herein to the extent that the applicable credit enhancement described
herein is insufficient to absorb all such losses.]
[UNDERWRITING GUIDELINES
Pursuant to the underwriting guidelines of the Originators, the assessment of
the creditworthiness of the related borrower is the primary consideration in
underwriting a Loan. The evaluation of the adequacy of the value of the related
Mortgaged Property in relation to the Loan, together with the amount of all
liens senior to the lien of the Loan (i.e., the related "Combined Loan-to-Value
Ratio") is given less consideration in underwriting the Loans. Loans with higher
Combined Loan-to-Value Ratios may experience higher rates of losses than those
of similar Loans with lower Combined Loan-to-Value Ratios.]
CERTIFICATEHOLDERS' LIBOR INTEREST CARRYOVER
The Pass-Through Rate for the Class A-7 Certificates is based generally on
LIBOR. As a result, if in respect of any Remittance Date there does not exist a
positive spread between (a) the Net Funds Cap allocated to each such Class of
Certificates and (b) the amount of interest accrued on each such Class at LIBOR
plus the applicable margin, the Pass- Through Rate for such Class on such
Remittance Date will be based upon the Net Funds Cap (but in no event exceeding
___% per annum). Any Certificateholders' LIBOR Interest Carryover arising as a
result of the applicable Class A-7 Pass-Through Rate being determined based upon
the Net Funds Cap, together with interest thereon at the then applicable
Pass-Through Rate (without giving effect to the Net Funds Cap), will be paid on
the following Remittance Date or on any succeeding Remittance Date to the extent
funds are allocated and available therefor after making all required prior
distributions and deposits with respect to such Remittance Date. See "The
Agreement--Flow of Funds." The ratings of the Class A-7 Certificates do not
address the likelihood of the payment of any Certificateholders' LIBOR Interest
Carryover and the Certificate Guaranty Insurance Policies do not guaranty
payment of any such amount.
GEOGRAPHIC CONCENTRATION
Approximately ___%, ___%, ___% and ___% of the Pool I Home Equity Loans will
consist of Home Equity Loans that are secured by Mortgaged Properties located in
the states of _________, __________, __________ and __________, respectively.
Approximately ___%, ___%, ___% and ___% of the Pool II Home Equity Loans will
consist of Home Equity Loans that are secured by Mortgaged Properties located in
the states of _________, __________, __________ and __________, respectively.
Approximately ___%, ___%, ___% and ___% of the Pool III Home Improvement Loans
will consist of Home Improvement Loans that are secured by Mortgaged Properties
located in the Home Equity states of _________, __________, __________ and
__________, respectively. Approximately ___%, ___%, ___% and ___% of the Pool IV
Loans will consist of Multifamily Loans that are secured by Mortgaged Properties
located in the states of _________, __________, __________ and __________,
respectively. Because of the relative geographic concentration of the Loans with
respect to each Pool within these states, delinquencies and losses on the Loans
within each Pool may be higher than would be the case if the Loans comprising
each Pool were more geographically diversified. With respect to the Loans in
these states, certain of the Mortgaged Properties may be more susceptible to
certain types of special hazards that are not covered by any casualty insurance,
such as earthquakes, floods and other natural disasters and major civil
disturbances, than residential properties located in other parts of the country.
[THE GUARANTY
The rating of the Class ___ Certificates will be based in part on an assessment
of The Money Store Inc.' s ability to make payments under the Guaranty. Any
reduction in the rating assigned to the unsecured long-term debt obligations of
The Money Store Inc. by [__________] may result in a similar reduction in the
rating of the [Class _____ and] Class ___ Certificates.]
HOME IMPROVEMENT LENDING PROGRAMS
Prospective Certificateholders should consider, in addition to the information
described under "The Single Family Loan Lending Program" in the Prospectus, the
following with respect to the Home Improvement Loans and the Multifamily Loans.
FHA LOANS
THE TITLE I LOAN PROGRAM-GENERAL
The National Housing Act of 1934 (the "NHA Act"), in Sections 1 and 2(a)
thereof, authorized the creation of the FHA and the Title I credit insurance
program (the "Title I Loan Program"). Several types of loans may be made under
the Title I Loan Program, including, among others, property improvement loans
(the "Title I Property Improvement Loans") which may be made by approved lenders
to finance alterations, repair or improvement of existing single family,
multifamily and nonresidential structures. See "The Trusts--FHA Loans" in the
Prospectus for a general description of the Title I Loan Program.
REQUIREMENTS FOR TITLE I PROPERTY IMPROVEMENT LOANS
The following is a description of the requirements for Title I Property
Improvement Loans currently in effect.
A Title I Property Improvement Loan cannot be used to purchase property. The
loan proceeds may only be used to finance property improvements which
substantially protect or improve the basic livability or utility of the property
to be improved. The loan amount may include the cost of the proposed
improvements and (i) architectural and engineering services; (ii) building
permit costs; (iii) flood insurance premiums; (iv) credit report costs; (v) a
fee for an actual inspection of the property by the lender or its agent, not to
exceed $75, but only where the total principal obligation is $7,500 or more;
(vi) title examination costs; (vii) appraisal fees in connection with a loan or
combination of loans on the same property with a total principal balance in
excess of $15,000; and (viii) commencing June 5, 1995, origination fees charged
by the lender.
One borrower may have multiple loans on multiple properties. In addition, a
borrower may obtain more than one loan to improve one property as long as the
total balance does not exceed the maximum permitted for the particular type of
loan involved.
The following maximum dollar limits applied to Title I property improvement
loans when the FHA Loans were originated:
TYPE OF PROPERTY LOAN LIMIT
Single Family $25,000 per property (non-manufactured home)
$17,500 per property (manufactured home)
Multifamily $60,000 per property or an average of
$12,000 per unit
Nonresidential $25,000 per property
Unsecured $ 7,500 per property
Title I loans bear fixed rates of interest and are fully amortizing with equal
installment payments (except for the first or last payments, which may not
exceed 150% of the regular installment payment). Weekly, biweekly, semi-monthly
or monthly payments are permitted at the lender's option. Where the borrower has
an irregular flow of income, the loan may be repaid in quarterly or semi-annual
installments which correspond with the borrower's flow of income. The loan
maturity may not be less than six months nor greater than 20 years plus 32 days.
The interest rate is established by each lender. For applications taken after
June 3, 1996, lenders may not charge any prepayment penalty.
The lender is entitled to recover the following costs from the borrower: (i)
origination fee; (ii) for applications taken after June 3, 1996, discount points
(which may be payable by the borrower or dealer, if applicable); and (iii)
certain other specified fees and charges. These costs set forth in item (i) with
respect to loans for which the credit application was received prior to July 5,
1995, and the costs set forth in items (ii) and (iii) cannot be paid out of the
loan proceeds.
An eligible borrower must have at least a one-half interest in one of the
following: (i) fee simple title to the related mortgaged property; (ii) a lease
on the mortgaged property which runs at least six months longer than the loan
term; or (iii) a recorded land installment contract on the mortgaged property.
There are two different types of FHA Loans and Conventional Home Improvement
Loans: (1) direct loans ("Direct Loans") and (2) dealer or dealer-contractor
loans ("Dealer Loans"). On a Direct Loan, the proceeds of the loan are disbursed
directly to the borrower, and there is no participation in the loan application
process by a dealer-contractor. On a Dealer Loan, the dealer-contractor
participates in the financing in some fashion, such as presenting the loan
application to the lending institution, receiving the check or money order
(although made payable to the borrower) or accompanying the borrower to the
institution for the purpose of receiving payment. On Dealer Loans, before it may
disburse funds, the lender must have in its possession a properly signed and
dated completion certificate, a copy of the dealer-contractor's contract or
sales agreement, and a borrower's authorization certificate, if the loan
proceeds are to be disbursed to the dealer-contractor.
TITLE I UNDERWRITING REQUIREMENTS
Specified loan underwriting requirements must be satisfied prior to loan
approval and disbursement of funds. The lender must verify that the borrower has
at least a one-half interest in the mortgaged property. Additionally, the
Originator requires that all owners in fee simple have signed the lien
instrument. A copy of the cost estimated on a direct loan or a contract signed
by the contractor and borrower must be reviewed with the nature of the work to
be done specifically described in the contract. In addition, the loan file must
contain the promissory note, lien instrument and other documents required by
regulation.
The borrower's current paying habits and previous credit history must be
ascertained by obtaining a consumer credit report and by other credit
investigation. Written verification of income and employment is also required.
This may include any one of the following: (i) recent payroll stubs
(year-to-date plus current); (ii) verification of employment forms; (iii) signed
tax returns (self-employed); or (iv) financial statements (self-employed).
Generally, any Title I loan originated after August 1994 in excess of $7,500
must be secured by a recorded lien on the improved property which is evidenced
by a mortgage or deed of trust executed by the borrower and all other owners in
fee simple. Prior to August 1994, any Title I loan in excess of $5,000 was
required to be secured by such a recorded lien. In order to facilitate the
financing of small home improvement projects, the FHA does not require loans of
$7,500 or less, in the case of Title I loans originated after August 1994, and
$5,000 or less, in the case of Title I loans originated prior to August 1994, to
be secured by the property being improved. Notwithstanding the preceding
sentence, such loans must be secured by a recorded lien on the improved
property, if, including such loan, the total amount of all Title I loans
obtained by the borrower exceeds $7,500, or $5,000, as the case may be.
Effective November 18, 1991, for any loan or combination of loans on the same
property with a total unpaid principal balance in excess of $15,000, the
borrower is required to have equity in the property being improved in an amount
at least equal to the loan amount, except for certain loans originated by a
governmental institution.
Effective August 15, 1994, the requirement that the borrower have equity in the
property was eliminated for owner- occupied properties if the structure being
improved has been completed and occupied at least six months prior to the date
of the related application. For non-owner occupied properties, or owner occupied
properties not meeting this requirement, the borrower is required to have equity
in the property being improved in an amount at least equal to the loan amount
and all existing liens on such property.
Effective June 3, 1996, for secured Title I Loans the requirement that the
borrower have equity in the property was eliminated for both owner-occupied and
non owner-occupied properties.
INSURANCE CLAIMS PROCEDURES FOR TITLE I LOANS
The FHA has specific requirements for servicing of loans in default and filing
of claims. The FHA requires the lender to make a reasonable effort to contact
the borrower and have a face-to-face meeting prior to accelerating the maturity
of the note and filing an insurance claim.
If the lender's efforts to have the loan brought current are unsuccessful, the
lender is required to notify credit reporting agencies, file a claim with the
FHA for insurance and assign the loan to the United States government, unless
the lender chooses to proceed against the mortgaged property under its Title I
security instrument. If the lender chooses so to proceed, it may not, without
the approval of FHA, also file an insurance claim. However, if the lender holds
an obligation secured by the mortgaged property which is senior to the Title I
loan, it may both proceed against the mortgaged property under the senior lien
instrument and file an insurance claim for the Title I loan. When a lender files
an insurance claim with the FHA, the FHA reviews the claim, the submitted loan
documents relating to the loan and the lender's servicing practices in order to
verify compliance with FHA Title I requirements. Based upon this review, the
loan is either accepted or rejected for insurance claims.
Subject to the then remaining reserve amount, the amount of the insurance claim
payment, when made, is equal to 90% of the sum of the following amounts:
(1) The unpaid amount of the loan obligation (net of unpaid principal and
the uncollected interest earned to the date of default calculated according to
the actuarial method).
(2) The unpaid amount of interest on the unpaid amount of the loan
obligation from the date of default to the date of the claim's initial
submission for payment plus 15 calendar days, calculated at the rate of 7% per
annum. (However, interest will not be paid for any period greater than nine
months from the date of default).
(3) The amount of uncollected court costs including fees paid for issuing,
serving and filing a summons.
(4) The amount of attorneys' fees on an hourly or other basis for time
actually expended and billed, not to exceed $500.
(5) The amount of expenses for recording the assignment of the loan to the
United States.
Because Certificateholders do not hold a contract of insurance, the FHA will not
recognize the Certificateholders as owners of the FHA Loans, or any portion
thereof, who are entitled to submit Claims to the FHA. Certificateholders will
have no direct right to receive insurance payments from the FHA.
DEALER/CONTRACTOR ORIGINATION
The Originators originate loans through and purchase contracts from home
improvement contractors located in various states throughout the United States.
An Originator employs Account Executives who contact home improvement
contractors and explain the merits and features of the Originator's available
financing plans. Account Executives review contractor needs and discuss the
Originator's prevailing home improvement loan rates, terms, credit standards and
policies. If a contractor desires to utilize the Originator's financing
programs, it must make application to the Originator for contractor approval.
The Originator has a contractor approval process pursuant to which the financial
condition, business experience, and qualifications of the contractor are
reviewed prior to its approval to sell or refer loans to the Originator. An
approved contractor's qualifications are reviewed annually in order to determine
whether such approval will be continued. The annual re-approval process includes
the updating of financial and business reference information. Contractors are
also monitored as to default levels, delinquency trends and customer complaint
resolution.
All contractor loans are written on an Originator's approved documents and are
either executed by the borrower in the presence (i) of the Originator's
employees or designated agents or (ii) of the contractor. All contracts which
are purchased are written on forms provided or approved by the Originator. Each
loan or contract is individually approved in accordance with the Originator's
guidelines. The contractor submits the customer credit application and
construction contract to the appropriate Originator office where the customer's
credit worthiness is determined. Credit analysis includes a review of the
customer's previous credit experience, paying habits, length and likelihood of
continued employment, ability to repay the debt, and other factors. The credit
analysis also includes the determination of the ratio of a customer's long-term
debt payments in relation to their gross monthly income.
The Originators require that all secured home improvement loans and contracts be
secured by a recorded lien on the property to be improved. Liens may be in
first, second or more junior position. Certain other criteria for FHA insured
loans and contracts are described under the caption "--FHA Loans." If an
Originator determines that the application meets the Originator's underwriting
guidelines (and FHA regulations where applicable) and the credit is approved,
the Originator originates the loan or purchases the contract. Unless a customer
has specifically requested staged funding of a contract, contracts are not
purchased until the customer has verified satisfactory completion of the home
improvement project. Where staged funding is used, the Originator requests a
completion certificate from the customer within 60 days of funding.
For FHA Loans, property values are generally determined based upon the stated
value provided by the borrower. For Conventional Home Improvement Loans,
property values are generally determined by a drive-by "as-is" appraisal with
50% of the cost of the improvement added to the appraisal to reflect the "after
improvement" value of the property. Title insurance is required on some FHA
Loans where the mortgage is in first position.
CONVENTIONAL HOME IMPROVEMENT LOANS - UNDERWRITING CRITERIA
Conventional Home Improvement Loans are underwritten in the same manner as the
FHA Loans except that the loan proceeds may be used for projects that do not
qualify for FHA Loans, the amount of the loan may exceed applicable FHA limits
and the loan maturity may be for up to 25 years from origination. However, the
maximum amount of an unsecured Conventional Home Improvement Loan is $12,500.
Conventional Home Improvement Loans and contracts are not insured by the FHA.
The original principal amount of a Conventional Home Improvement Loan generally
may not exceed $35,000 for the Originator's secured no equity program, a program
in which no appraisal is required and no LTV is calculated, and generally may
not exceed $75,000 for the Originator's other secured contractor programs.
THE MULTIFAMILY LENDING PROGRAM
The Originators originate Multifamily Loans in several states. Typically,
Multifamily Loans are 25 to 30 year term fully amortizing loans consisting of 5
or more units (some of which may be non-residential units) for non-purchase
money loans. All of the Multifamily Loans are first liens with a minimum loan
amount of $50,000 and a maximum loan amount of $1,000,000, a maximum
Loan-to-Value ratio of approximately 65% and minimum debt service of 1.25 to 1,
although these guidelines can be varied with the approval of senior management.
All Multifamily Loans are underwritten centrally in Sacramento, California.
Appraisals, field inspections and environmental inspections (performed by
outside and certified inspectors) are required for each Multifamily Loan. Title
insurance is obtained for all Multifamily Loans. Substantially all of the mixed
used properties securing Multifamily Loans will be properties with no less than
approximately 90%, measured by square footage, number of units and projected
rent, being allocated to residential units.
THE REPRESENTATIVE AND THE ORIGINATORS
The Money Store Inc. will act as the Servicer of the Loans. Except for certain
representations and warranties relating to the Loans and certain other matters,
The Money Store Inc.'s obligations with respect to the Loans are limited to its
contractual servicing obligations.
The Money Store Inc. is a New Jersey corporation and the parent company of
the Originators and their affiliates. The Money Store Inc. is headquartered in
Sacramento, California and Union, New Jersey.
The Money Store Inc. is a financial services company engaged, through its
subsidiaries (including the Originators), in the business of originating,
purchasing, selling and servicing consumer and commercial loans of specified
types and offering related services. Loans originated by The Money Store Inc.
and its subsidiaries primarily consist of home equity loans, loans (the "SBA
Loans") guaranteed in part by the United States Small Business Administration
(the "SBA") and government guaranteed student loans ("Student Loans"). The Money
Store Inc. began providing financing for new and used vehicles (the "Auto
Loans") in early 1995.
Since 1967, The Money Store Inc. and its subsidiaries have been active in the
development of the residential home equity lending industry in the United
States. Based upon industry sources, the Representative believes that during
1996 The Money Store Inc. and its subsidiaries were among the largest
originators, by principal amount, of home equity loans in the United States. In
1979, The Money Store Inc. and its subsidiaries began to originate SBA Loans
and, based upon statistics compiled by the SBA, the Representative believes that
during each of the last 14 SBA fiscal years it originated a greater principal
amount of SBA Loans than any other originator of such loans in the United
States. In 1984, The Money Store Inc. and its subsidiaries entered into the
government guaranteed student loan origination market.
For the year ended December 31, 1996, The Money Store Inc. and its subsidiaries
originated or purchased approximately $_____________ of loans. Of those loans,
approximately __% by principal amount were home equity loans, approximately __%
by principal amount were SBA Loans, approximately __% by principal amount were
Student Loans and approximately __% by principal amount were Auto Loans. The
business strategy of The Money Store Inc. has been to identify and pursue niche
lending opportunities which management believes have had widespread unsatisfied
demand.
At June 30, 1997, The Money Store Inc. and its subsidiaries operated out of ___
locations and were doing business in __ states and the District of Columbia and
the Commonwealth of Puerto Rico.
The following table shows the originations and portfolio balances of The Money
Store Inc. and its subsidiaries for the periods indicated:
<TABLE>
<CAPTION>
ORIGINATIONS AND SERVICED LOAN PORTFOLIO BY LOAN TYPE
YEAR ENDED DECEMBER 31,
1994
ORIGINATIONS SERVICED
AMOUNT NUMBER OF LOANS LOAN PORTFOLIO
<S> <C> <C> <C>
Home Equity Loans................ $ $
% of Total................... % %
SBA Loans....................
of Total.................... % %
Student Loans................
% of Total................... % %
Total....................... $ $
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
1995 1996
ORIGINATIONS ORIGINATIONS
SERVICED SERVICED
NUMBER OF LOAN NUMBER OF LOAN
AMOUNT LOANS PORTFOLIO AMOUNT LOANS PORTFOLIO
<S> <C> <C> <C> <C> <C> <C>
Home Equity $ $ $ $
Loans...................
% of Total.............. % % % %
SBA Loans...............
% of Total.............. % % % %
Student Loans...........
% of Total.............. % % % %
Auto Loans.............. % % % %
% of Total.............. % % % %
Total.................. $ $ $ $
</TABLE>
Although the Originators have no maximum dollar amount for home equity loans,
the actual maximum amount that the Originators will lend is determined by the
applicant's ability to repay the loan, the value of the borrower's equity in the
real estate and the ratio of such equity to the home's appraised value. For home
equity loans originated in 1994, 1995 and 1996, the average loan size was
approximately $________, $_______ and $________, respectively.
The following table illustrates The Money Store Inc.'s delinquency and
charge-off experience with respect to home equity loans in its servicing
portfolio:
HOME EQUITY LOAN DELINQUENCIES AND CHARGE-OFFS
(DOLLARS IN THOUSANDS)
AS OF AND FOR THE YEARS ENDED
DECEMBER 31,
1994 1995 1996
---- ---- ----
30-59 days past due(1)............. % % %
60-89 days past due(1)............. % % %
90+ days past due(1)............... % % %
Loans charged-off, net............. $ $ $
Loans charged-off, net, as a percentage of % % %
the home equity loan portfolio.
$ $ %
(1) The percentage of Home Equity Loan charge-offs is calculated based upon
the dollar amount of charge-offs divided by the dollar amount of Home
Equity Loans contained in the Serviced Loan Portfolio.
While the above delinquency and charge-off experience represents the Servicer's
recent experience, there can be no assurance that the future delinquency and
charge-off experience on the Home Equity Loans included in Pools I and II will
be similar. The Servicer can neither quantify the impact of any recent property
value declines on the Home Equity Loans nor predict whether, to what extent or
how long such declines may continue. In a period of such decline, the rates of
delinquencies, foreclosures and losses on the Home Equity Loans could be higher
than those heretofore experienced in the mortgage lending industry in general.
In addition, adverse economic conditions (which may or may not affect real
property values) may affect the timely payment by borrowers of scheduled
payments of principal and interest on the Home Equity Loans and, accordingly,
the actual rates of delinquencies, foreclosures and losses. See "Description of
the Certificates--The Pool I, Pool II, Pool III and Pool IV Distribution
Amounts" herein for a discussion of the effect to Certificateholders of
delinquencies in payments on The Home Equity Loans.
The Money Store Inc. does not report the delinquency and charge-off experience
of its Home Improvement Loans and Multifamily Loans and there can be no
assurance, and no representation is made, that the delinquency and charge-off
experience with respect to the Home Improvement Loans and the Multifamily Loans
will be similar to that reflected in the table above.
LEGAL PROCEEDINGS
Because the nature of the business of The Money Store Inc. involves the
collection of numerous accounts, the validity of liens and compliance with state
and federal lending laws, The Money Store Inc. is subject to claims and legal
actions in the ordinary course of its business. While it is impossible to
estimate with certainty the ultimate legal and financial liability with respect
to such claims and actions, The Money Store Inc. believes that the aggregate
amount of such liabilities will not result in monetary damage which would have a
material adverse effect on the financial condition of The Money Store Inc.
THE LOAN POOLS
GENERAL
Certain data with respect to the Initial Loans expected to be included in the
Trust is set forth below. References in this Prospectus Supplement to the
characteristics of the Pool I, Pool II, Pool III and Pool IV Loans as of the
Cut-Off Date are deemed to include the characteristics, as of the date of their
origination, of those Loans in such Pools originated after the Cut-Off Date and
up to the Closing Date. A Current Report on Form 8-K containing a detailed
description (the "Detailed Description") of the Initial Loans will be available
to purchasers of the Class A Certificates upon request at or before the initial
issuance of the Class A Certificates and will be filed with the Securities and
Exchange Commission within 15 days after such issuance. The Detailed Description
will specify the principal balance of the Initial Pool I and Initial Pool II
Home Equity Loans, the Initial Pool III Home Improvement Loans and the Initial
Pool IV Multifamily Loans as of the Cut-Off Date, the initial principal balance
of each Class of the Class A Certificates and will also include the following
information regarding such Initial Pool I and Initial Pool II Home Equity Loans,
Initial Pool III Home Improvement Loans and Initial Pool IV Multifamily Loans
(in each case, presented by (i) principal balance of the applicable Pool as of
the Cut-Off Date; (ii) percentage of the applicable Pool by principal balance
and (iii) number of Initial Loans for the applicable Pool): geographical
distribution of the Mortgaged Properties, Combined Loan-to-Value Ratios,
Mortgage Interest Rates, original principal balances, number of months since
origination, months remaining to stated maturity, Gross Margins with respect to
the Initial Pool II Home Equity Loans, Lifetime Caps with respect to the Initial
Pool II Home Equity Loans, Lifetime Floors with respect to the Initial Pool II
Home Equity Loans and the months to next Change Date with respect to the Initial
Pool II Home Equity Loans.
The statistical information presented in this Prospectus Supplement concerning
the Pool I, Pool II, Pool III and Pool IV Loans is based on preliminary Pools
expected to be delivered to the Trustee and the Co-Trustee on the Closing Date.
The Representative expects that loans (including the Subsequent Loans) that were
not contained in the preliminary Pools will be added to the final Pools. While
the statistical distribution of the characteristics for the final Pools of Loans
will vary somewhat from the statistical distribution of such characteristics for
the preliminary Pools of Loans presented in this Prospectus Supplement, the
Representative does not believe that the characteristics of the final Pools will
differ materially.
The Agreement will provide that Subsequent Loans may be purchased by the Trust
from the Originators from time to time on or before the close of business on
_______, 1997 from funds on deposit in the Pre-Funding Account. Any Subsequent
Pool I or Pool II Loan so acquired will have been originated and underwritten,
or purchased and re- underwritten, by one of the Originators, substantially in
accordance with the Originator's underwriting criteria described in the
Prospectus under the caption "The Home Equity Lending Program--Underwriting
Criteria." Any Subsequent Pool III Loan so acquired will have been originated
and underwritten, or purchased and re-underwritten, by one of the Originators,
substantially in accordance with the Originator's underwriting criteria
described herein under the caption "Lending Programs--The Home Improvement
Lending Program--FHA Loans--Title I Underwriting Requirements," in the case of
FHA Loans, or "Lending Programs--The Home Improvement Lending
Program--Conventional Home Improvement Loans--Underwriting Criteria," in the
case of Conventional Home Improvement Loans. Any Subsequent Pool IV Loan so
acquired will have been originated and underwritten, or purchased and
re-underwritten, by one of the Originators, substantially in accordance with the
Originator's underwriting criteria described herein under the caption "Lending
Program--The Multifamily Lending Program." The purchase price for each
Subsequent Loan will be no greater than its unpaid principal balance as of the
related Subsequent Cut-Off Date. The Agreement will provide that each Pool of
Loans, following the conveyance of any Subsequent Loans to the appropriate Pool,
must, in the aggregate, conform to certain specified characteristics. See "The
Agreement--Representations and Warranties" in the Prospectus.
HOME EQUITY LOANS
The Initial Home Equity Loans consist of mortgages, deeds of trust or other
security instruments (the "Home Equity Mortgages" or "Mortgages"), and the
related promissory notes (the "Home Equity Mortgage Notes" or "Mortgage Notes")
primarily secured by one- to four-family residences, units in planned unit
developments and units in condominium developments (the "Home Equity Mortgaged
Properties" or "Mortgaged Properties"). The aggregate principal balance of the
Initial Pool I Home Equity Loans as of the Cut-Off Date will be approximately
$___________ and the aggregate principal balance of the Initial Pool II Home
Equity Loans as of the Cut-Off Date will be approximately $_____________. The
Initial Home Equity Loans will be originated and underwritten, or purchased and
re-underwritten, by one of the Originators, substantially in accordance with the
underwriting criteria described in the Prospectus under the heading "The Home
Equity Lending Program--Underwriting Criteria." Unless otherwise noted, all
percentages in this general discussion are measured by the expected principal
balance of the Initial Home Equity Loans described herein on the Cut-Off Date,
and the statistics are given as of the Cut-Off Date.
The Pool I Home Equity Loans will bear interest at fixed rates which, as of the
Cut-Off Date, ranged from approximately ___% to ___% per annum. The Pool II Home
Equity Loans will bear interest at adjustable rates which, as of the Cut-Off
Date, ranged from ___% to ___% per annum (each, a "Pool II Mortgage Interest
Rate"), which will adjust on the date set forth in the related Mortgage Note.
For each Pool II Home Equity Loan, the related Pool II Mortgage Interest Rate
will change initially after the period set forth in the related Mortgage Note
and periodically thereafter. Each date on which a Pool II Mortgage Interest Rate
changes is referred to as the "Change Date" for the related Pool II Home Equity
Loan. No more than approximately ___% of the Pool II Home Equity Loans will have
their first Change Date occurring approximately 24 months after origination and
no more than approximately ___% of the Pool II Home Equity Loans will have their
first Change Date occurring approximately 36 months after origination. No more
than ___% of the Pool II Home Equity Loans will have their first Change Date
occurring approximately 48 months after origination. The remainder of the Pool
II Home Equity Loans will have their first Change Date occurring no later than
12 months after origination.
The Pool II Mortgage Interest Rate relating to at least ___% of the Pool II Home
Equity Loans will adjust on each applicable Change Date to equal the sum of (i)
the applicable London Interbank Offered rate for U.S. dollar deposits (the
"LIBOR Index") and (ii) the number of basis points set forth in the related
Mortgage Note (the "Gross Margin"), subject to rounding and to the effects of
the Periodic Rate Cap, the applicable Lifetime Cap and the applicable Lifetime
Floor. The Pool II Mortgage Interest Rate relating to the remainder of the Pool
II Home Equity Loans will adjust on each Change Date to equal the sum of (i) the
applicable One-Year Constant Maturity Treasury Index ("CMT" or the "Treasury
Index") as published by the Federal Reserve Board in the applicable Federal
Reserve Board Statistical Release No. H.15, and (ii) the related Gross Margin,
subject to rounding and to the effects of the Periodic Rate Cap, the applicable
Lifetime Cap and the applicable Lifetime Floor.
The Gross Margins for the Pool II Home Equity Loans will range from ____% to
____%. The weighted average Gross Margin of the Pool II Home Equity Loans will
be approximately ____%. The "Periodic Rate Cap" limits changes in the Pool II
Mortgage Interest Rate for each Pool II Home Equity Loan on each Change Date to
the Periodic Rate Cap as set forth in the related Mortgage Note. The Lifetime
Caps of the Pool II Home Equity Loans will range from approximately ___% to
___%. The weighted average Lifetime Cap of the Pool II Home Equity Loans will be
approximately ___%. The Lifetime Floors of the Pool II Home Equity Loans will
range from approximately __% to __%. The weighted average Lifetime Floor of the
Pool II Home Equity Loans will be approximately ___%. The months to the next
Change Date of the Pool II Home Equity Loans will range from __ month to __
months. The weighted average months to next Change Date will be approximately __
months. The Pool II Home Equity Loans do not provide for negative amortization.
No less than approximately __% and __% of the Initial Pool I Home Equity Loans
and Initial Pool II Home Equity Loans, respectively, will be secured by first
mortgage liens and the remainder of the Initial Pool I Home Equity Loans and
Initial Pool II Home Equity Loans will be secured by second mortgage liens.
Based on representations made by the Mortgagors, all of the Initial Home Equity
Loans will be secured by one-to four-family residences, approximately __% and
__% of the Initial Pool I and Initial Pool II Home Equity Loans, respectively,
are secured by vacation homes, secondary residences, or investment properties,
less than ___% and less than __% of the Initial Pool I and Initial Pool II Home
Equity Loans, respectively, will be secured by individual units in low-rise
condominiums, approximately __% and __% of the Initial Pool I and Initial Pool
II Home Equity Loans, respectively, will be secured by two-, three- or
four-family houses, and no Home Equity Loan will be secured by individual units
of other types including high-rise condominiums and mixed-use buildings. No
Initial Home Equity Loan will be secured by a mobile home or a cooperative
residence.
Approximately __% and __% of the Initial Pool I and Initial Pool II Home Equity
Loans, respectively, will be secured by Mortgaged Properties located in
California. Improvements on Mortgaged Properties located in California may be
more susceptible to certain types of special hazards not covered by insurance
(such as earthquakes) than properties located in other parts of the country. In
addition, the economy of the State of California may be adversely affected to a
greater degree than that of other areas of the country by certain developments
affecting industries concentrated in such state. Moreover in recent periods,
California has experienced significant downturns in the market value of real
estate.
Approximately __% of the Initial Pool I Home Equity Loans are secured by
Mortgaged Properties located in _________. Approximately __% of the Initial Pool
II Home Equity Loans will be secured by Mortgaged Properties located in
________. No more than approximately __% of the Initial Pool I Home Equity Loans
and __% of the Initial Pool II Home Equity Loans will be secured by Mortgaged
Properties located in any other state.
Based upon the original principal balances of the Initial Home Equity Loans, no
more than approximately __% and __%, respectively, of the Initial Pool I and
Initial Pool II Home Equity Loans will have a Combined Loan-to-Value Ratio
exceeding __%. The weighted average Combined Loan-to-Value Ratios of the Initial
Pool I and Initial Pool II Home Equity Loans will be no more than approximately
__% and __%, respectively. The Initial Home Equity Loans will not be insured or
guaranteed by any governmental entity.
The Initial Pool I Home Equity Loans will bear interest at fixed rates which
range from ___% to ____% per annum. The Initial Pool II Home Equity Loans will
bear interest at adjustable rates which initially range from ____% to ____% per
annum. The weighted average Pool I Mortgage Interest Rate on the Initial Pool I
Home Equity Loans will be approximately ____% per annum. The weighted average
current Pool II Mortgage Interest Rate on the Initial Pool II Home Equity Loans
will be approximately ____% per annum. The lowest principal balances of any
Initial Pool I and Initial Pool II Home Equity Loans will be approximately
$______ and $______, respectively, and the highest will be approximately
$_________ and $___________, respectively. The average principal balances of the
Initial Pool I and Initial Pool II Home Equity Loans will be approximately
$________ and $_________, respectively. Initial Home Equity Loans not originated
by an Originator or Initial Home Equity Loans having original principal balances
less than or equal to $__________ may not be covered by title insurance
policies. The weighted average remaining terms to stated maturity of the Initial
Pool I and Initial Pool II Home Equity Loans will be approximately ____ months
and ____ months, respectively. The weighted average terms to stated maturity of
the Initial Pool I and Initial Pool II Home Equity Loans at origination will be
approximately ___ months and ___ months, respectively. Less than approximately
__% and __% of the Initial Pool I and Initial Pool II Home Equity Loans,
respectively, will be Balloon Loans. No Initial Pool II Home Equity Loan will be
a Balloon Loan.
HOME IMPROVEMENT LOANS
The Initial Home Improvement Loans consist of fixed-rate, residential home
improvement mortgages, deeds of trust or other security instruments (the "Home
Improvement Mortgages" or "Mortgages"), and the related promissory notes, retail
installment contracts or obligations, or sales agreements (the "Home Improvement
Mortgage Notes" or "Mortgage Notes") primarily secured by one- to four-family
residences, units in planned unit developments and units in condominium
developments (the "Home Improvement Mortgaged Properties" or "Mortgaged
Properties"). The aggregate principal balances of the Initial Home Improvement
Loans as of the Cut-Off Date will be approximately $________________.
Approximately ___% and ___% of the Initial Home Improvement Loans will be FHA
Loans and Conventional Home Improvement Loans, respectively. The Initial Home
Improvement Loans will have been originated and underwritten, or purchased and
re-underwritten, by one of the Originators, substantially in accordance with the
Originators' underwriting criteria described herein under the caption "Lending
Programs--The Home Improvement Lending Program--Title I Underwriting
Requirements," in the case of FHA Loans, or "Lending Programs--The Home
Improvement Lending Programs--Conventional Home Improvement Loans--Underwriting
Criteria," in the case of Conventional Home Improvement Loans. Unless otherwise
noted, all percentages in this general discussion are measured by the expected
principal balance of the Initial Home Improvement Loans described herein on the
Cut-Off Date and the statistics are given as of the Cut-Off Date.
Approximately ___% of the Initial Home Improvement Loans will be secured by
first mortgage liens, no more than approximately ___% of the Initial Home
Improvement Loans will be secured by second mortgage liens and the remainder of
the Initial Home Improvement Loans will be secured by more junior mortgage
liens. Based on representations made by the Mortgagors, all of the Initial Home
Improvement Loans will be secured by one-to four-family residences,
approximately ___% of the Initial Home Improvement Loans are secured by vacation
homes, secondary residences, or investment properties, less than ___% of the
Initial Home Improvement Loans will be secured by individual units in low-rise
condominiums, approximately ___% of the Initial Home Improvement Loans will be
secured by two-, three- or four-family houses, and no Initial Home Improvement
Loan will be secured by individual units of other types including high-rise
condominiums and mixed-use buildings. No Initial Home Improvement Loan will be
secured by a mobile home or a cooperative residence.
Approximately ___% of the Initial Home Improvement Loans are secured by
Mortgaged Properties located in _________________________. No more than
approximately ____% of the Initial Home Improvement Loans will be secured by
Mortgaged Properties located in any other state.
The FHA Loans are insured by the FHA to the extent described herein. The
Conventional Home Improvement Loans are not insured or guaranteed by any
governmental entity.
The Initial Home Improvement Loans will bear interest at fixed rates which range
from _____% to ____% per annum. The weighted average Mortgage Interest Rate on
the Initial Home Improvement Loans will be approximately ____% per annum. The
lowest principal balances of any Initial Home Improvement Loans will be
approximately $________ and the highest will be approximately $________. The
average principal balances of the Initial Home Improvement Loans will be
approximately $________. The weighted average remaining terms to stated maturity
of the Initial Home Improvement Loans will be approximately ____ months. The
weighted average terms to stated maturity of the Initial Home Improvement Loans
at origination will be approximately ____ months. None of the Initial Home
Improvement Loans will be Balloon Loans.
MULTIFAMILY LOANS
The Initial Multifamily Loans consist of home improvement mortgages, deeds of
trust or other security instruments (the "Multifamily Mortgages" or
"Mortgages"), and the related promissory notes (the "Multifamily Mortgage Notes"
or "Mortgage Notes") primarily secured by five or more unit residential or
mixed-use residential and commercial properties (the "Multifamily Mortgaged
Properties" or "Mortgaged Properties"). The aggregate principal balances of the
Initial Multifamily Loans as of the Cut-Off Date will be approximately
$___________. The Initial Multifamily Loans will have been originated and
underwritten, or purchased and re-underwritten, by one of the Originators,
substantially in accordance with the underwriting criteria described herein
under the heading "Lending Programs--The Multifamily Lending
Program--Underwriting Criteria."
Approximately ___% of the Initial Multifamily Loans will be secured by Mortgaged
Properties located in __________________________. No more than approximately
___% of the Initial Multifamily Loans will be secured by Mortgaged Properties
located in any other state. No Mortgaged Properties relating to the Subsequent
Multifamily Loans will be located in _______. All the Initial Multifamily Loans
will be secured by first mortgage liens.
Based upon the original principal balances of the Initial Multifamily Loans,
none of the Initial Multifamily Loans will have a Combined Loan-to-Value Ratio
exceeding approximately ___%. The weighted average Combined Loan-to-Value Ratios
of the Initial Multifamily Loans will be approximately ____%. The Initial
Multifamily Loans will not be insured or guaranteed by any governmental entity.
The Initial Multifamily Loans will bear interest at fixed rates which range from
____% to ____% per annum. The weighted average Mortgage Interest Rate on the
Initial Multifamily Loans will be approximately _____% per annum. The lowest
principal balance of any Initial Multifamily Loans will be approximately
$________ and the highest will be approximately $________. The average principal
balance of the Initial Multifamily Loans will be approximately $________. All
Initial Multifamily Loans will be covered by title insurance policies. The
weighted average remaining term to stated maturity of the Initial Multifamily
Loans will be approximately ____ months. The weighted average term to stated
maturity of the Initial Multifamily Loans at origination will be approximately
____ months.
PAYMENTS ON THE LOANS
The Initial Loans, other than Balloon Loans, will generally provide for a
schedule of payments which will be, if timely paid, sufficient to amortize fully
the principal balance of the related Initial Loan on or before its maturity
date. Interest with respect to the Initial Loans will accrue on either an
actuarial interest method or a simple interest method.
The actuarial interest method provides that interest is charged and payments are
due as of a scheduled day of each month which is fixed at the time of
origination. Scheduled monthly payments on such Loans received either earlier or
later (other than delinquent) than the scheduled due dates thereof will not
affect the amortization schedule or the relative application of such payments to
principal and interest. With respect to the Pool II Home Equity Loans, on each
Change Date, the Mortgagor's monthly payment will be adjusted prospectively to
fully amortize such Pool II Home Equity Loans at the then current Pool II
Mortgage Interest Rate over its stated remaining term to maturity.
The simple interest method provides for the amortization of the amount of each
loan over a series of equal monthly payments. However, unlike the monthly
payment under the actuarial interest method, each monthly payment consists of an
installment of interest which is calculated on the basis of the outstanding
principal balance at the stated interest rate and based upon the period elapsed
since the preceding payment of principal was made, using the method permitted by
applicable law. As payments are received under the loan, the amount received is
applied first to interest accrued to the date of payment and the balance, if
any, is applied to reduce the unpaid principal balance; provided, however, that
with respect to FHA Loans secured by Mortgaged Properties located in states
where the Servicer collects the FHA Insurance Premium directly from the related
Mortgagor, payments are applied first to the FHA Insurance Premium. Accordingly,
if a borrower pays a fixed monthly installment on such a loan before its
scheduled due date, the portion of the payment allocable to interest for the
period since the preceding payment was made will be less than it would have been
had the payment been made as scheduled, and the portion of the payment applied
to reduce the unpaid principal balance will be correspondingly greater.
Conversely, if a borrower pays a fixed monthly installment on the loan after its
scheduled due date, the portion of the payment allocable to interest for the
period since the preceding payment was made will be greater than it would be had
the payment been made as scheduled, and the portion of the payment applied to
reduce the unpaid principal balance will be correspondingly reduced. In
addition, a late charge may be imposed with respect to the past due amount.
The amount of interest payable to the Class A Certificateholders on each
Remittance Date will not be affected by interest accruing on the Loans based on
the simple interest method. On each Remittance Date, the Class A
Certificateholders are entitled to receive 30 days' interest (or, with respect
to the Class A-7 Certificate, the actual number of days from the last Remittance
Date to but not including the upcoming Remittance Date) at the applicable
Pass-Through Rate on the outstanding principal balances of the applicable Class
of Certificates. The Servicer is required to remit to the Trustee the excess, if
any, of the amount of interest the Class A Certificateholders are entitled to
receive on each Remittance Date over the interest collected on the Loans during
the related Due Period and available to pay interest on the Class A
Certificates. See "The Agreement--Monthly Advances and Compensating Interest"
herein.
Similarly, the compensation payable to the Servicer will not be affected by
interest accruing on the Loans based on the simple interest method. The Servicer
is entitled to receive a fee based on the principal balance of the Loans, not
upon the portion of a monthly payment allocable to interest. See "The
Agreement--Servicing and Other Compensation" herein.
If a payment is received on a Loan before its due date, more of such payment
will be used on the related Remittance Date to pay principal on the Class A
Certificates than if such payment was received on such due date. Conversely, if
a payment is received on a Loan after its scheduled due date, less of such
payment will be used on the related Remittance Date to pay principal on the
Class A Certificates than if such payment was received on its due date. This
will not affect the total amount of principal to be received by the Class A
Certificateholders over the life of the transaction, but it may affect the
weighted average lives of the Class A Certificates.
MATURITY, PREPAYMENT AND YIELD CONSIDERATIONS
The effective yield to the Pool I, Pool III and Pool IV Certificateholders will
be slightly lower than the yield otherwise produced by the applicable
Pass-Through Rate because, while interest will accrue on the Pool I, Pool III
and Pool IV Certificates from the first day of each month, the distribution of
such interest will not be made until the 15th day (or if such 15th day is not a
business day, the next succeeding business day) of the month following the month
of accrual. For the Class A-7 Certificates, interest will accrue from the 15th
day of each month until the 14th day of the next month (or the Closing Date in
the case of _________, 1997 Remittance Date).
In general, because the Pool I, Pool III and Pool IV Loans will bear fixed
interest rates, when the level of prevailing interest rates for similar loans
significantly declines, the rate of prepayment of the Pool I, Pool III and Pool
IV Loans is likely to increase, although the prepayment rate is influenced by a
number of other factors, including general economic conditions and homeowner
mobility. Similarly, when the level of interest rates for similar loans
significantly rises, the rate of prepayment of the Pool I, Pool III and Pool IV
Loans may decrease. No prediction can be made as to the prepayment rate that the
Loans will actually experience.
All of the Pool II Loans bear adjustable rates. However, the Pool II Loans still
may be subject to increased principal prepayments in a low interest rate
environment. For example, if prevailing interest rates were to fall, Mortgagors
with Pool II Loans may be inclined to refinance their Pool II Loans with a fixed
rate loan to "lock in" a lower interest rate. The existence of the Periodic Rate
Cap, Lifetime Cap and Lifetime Floor also may affect the likelihood of
prepayments resulting from refinancings. In addition, the delinquency and loss
experience on the Pool II Loans may differ from that on the Loans in the other
Pools because the amount of the monthly payments on the Pool II Loans are
subject to adjustment on each Change Date. If such different experience were to
occur, the prepayment experience on the Class A-7 Certificates may differ from
that on the other Classes of Certificates.
Generally, second priority mortgage loans have smaller average principal
balances than first priority mortgage loans and are not viewed by borrowers as
permanent financing. Accordingly, the Loans included in the Trust that are
secured by second liens may experience a higher rate of prepayment than
traditional first priority mortgage loans. In addition, any future limitations
on the right of borrowers to deduct interest payments on mortgage loans for
Federal income tax purposes may result in a higher rate of prepayment of the
Loans. The obligation of the Servicer to enforce the "due-on-sale" provisions of
the Loans may also increase prepayments. The prepayment experience of the Pools
may be affected by a wide variety of factors, including general and local
economic conditions, mortgage market interest rates, the availability of
alternative financing and homeowner mobility. The Money Store Inc. is unaware of
any reliable studies that would project the prepayment risks associated with the
Loans based upon current interest rates and economic conditions and the
historical prepayment experience of The Money Store Inc.'s portfolio of home
equity loans.
Unscheduled payments, delinquencies, repurchases of defective Loans, defaults on
the Loans and distributions from the Pre-Funding Account, if any, on the
Remittance Dates in ______, ________, ________, and 1997 and the Special
Remittance Date will affect the amount of funds available to make distributions
on each Remittance Date. In addition, the Servicer may, at its option, and in
the absence of the exercise thereof by the Servicer, Certificate Guaranty
Insurer may, at its option, on any Remittance Date on and after the Optional
Servicer Termination Date, purchase from the Trust all of the Loans and any
related REO Properties at the Termination Prices for all Pools. Certificate
Guaranty Insurer may, at its option, similarly purchase all the Loans and REO
Properties on any Remittance Date, on or after the Cross-Over Date, on which the
aggregate principal balances as of the Cut-Off Date of the Loans that have been
liquidated (each, a "Liquidated Loan") is equal to or exceeds 25% of the sum of
(i) the Original Pool Principal Balance and (ii) the original Pre-Funded Amount,
if any. The Cross-Over Date is defined in the Agreement as the date on which the
Maximum Subordinated Amount is reduced to zero. See "The Certificate Guaranty
Insurance Policies and Certificate Guaranty Insurance" herein.
If prepayments of principal are received on the Loans at a rate greater than
that assumed by an investor (including distributions from the Pre-Funding
Account, if any, and receipt of Subordination Increase Amounts), the yield will
be increased on Class A Certificates purchased by such investor at a price less
than par (i.e., the principal balance of a Class A Certificate at the time of
its purchase). Similarly, if prepayments of principal are received on the Loans
at a rate greater than that assumed by an investor, the yield will be decreased
on Class A Certificates purchased at a price greater than par. The effect on an
investor's yield of principal prepayments on the Loans occurring at a rate that
is faster (or slower) than the rate anticipated by the investor in the period
immediately following the issuance of the applicable Class of Class A
Certificates may not be offset by a subsequent like reduction (or increase) in
the rate of principal payments. The weighted average lives of the Pool I, Pool
II, Pool III and Pool IV Certificates will also be affected by the amount and
timing of delinquencies and defaults on the Pool I, Pool II, Pool III and Pool
IV Loans and the liquidations of defaulted Pool I, Pool II, Pool III and Pool IV
Loans, respectively. Delinquencies and defaults will generally slow the rate of
payment of principal to the Class A Certificateholders since (i) neither the
Servicer nor Certificate Guaranty Insurer is obligated to advance for delinquent
payments of principal and (ii) Insured Payments with respect to principal
generally are not required until the occurrence of a Subordination Deficit (as
defined herein under "Description of the Certificates--Spread Amount"). However,
this effect will be offset to the extent that lump sum recoveries on defaulted
Loans and foreclosed Mortgaged Properties result in principal payments on the
Loans faster than otherwise scheduled. Additionally, the holders of the Pool III
Certificates will be entitled to any FHA Payments received by the Claims
Administrator.
As described herein, certain Classes of Pool I Certificates will be entitled to
receive payments of principal prior to other Classes of Pool I Certificates. As
a result, the Classes of Pool I Certificates receiving payments of principal
first will immediately be affected by the prepayment rate on the Pool I Home
Equity Loans. However, the timing of commencement of principal distributions and
the weighted average lives of each Class of Class A Certificates will be
affected by the prepayment rate experienced both before and after the
commencement of principal distributions on any such Class.
If during the Funding Period the entire original Pre-Funded Amount has not been
used to purchase Subsequent Loans, on the Special Remittance Date, the related
Pool I, Pool II, Pool III and Pool IV Certificates will be prepaid in part from
and to the extent of such remaining amounts. Although no assurances can be
given, it is anticipated by the Representative that the principal amount of
Subsequent Loans sold to the Trust will require the application of substantially
all the amounts on deposit in the Pre-Funding Account, and that there should be
no material principal prepaid on the Class A Certificates from such amounts.
The Loans are either (i) "simple interest" or "date-of-payment loans" or (ii)
"actuarial method" loans. If a payment is received on a Loan which is a "simple
interest" loan later than scheduled, a smaller portion of such payment will be
applied to principal and a greater portion will be applied to interest than
would have been the case had the payment been received on the scheduled due
date, resulting in such Loan having a longer weighted average life than would
have been the case had the payment been made as scheduled. Conversely, if a
payment on a Loan is received earlier than scheduled, more of such payment will
be applied to principal and less to interest than would have been the case had
the payment been received on its scheduled due date, resulting in such Loan
having a shorter weighted average life than would have been the case had the
payment been made as scheduled.
In the event that less than 30 days' interest is collected on a Loan during a
Due Period, whether due to prepayment in full or a Curtailment, the Servicer is
obligated to pay Compensating Interest with respect thereto, but only to the
extent of the aggregate Servicing Fee and Contingency Fee for the related
Remittance Date. To the extent such shortfalls exceed the amount of Compensating
Interest that the Servicer is obligated to pay, and are not otherwise covered by
Net Monthly Excess Spread (as defined herein under "Description of the
Certificates--Spread Amount") or Insured Payments, the yield on the Pool I, Pool
II, Pool III or Pool IV Certificates, as the case may be, will be adversely
affected. Any shortfall in collections of interest resulting from the early
receipt of a scheduled payment will not be covered by Compensating Interest, but
will be covered by Monthly Advances.
The Class A-7 Pass-Through Rate will be adjusted by reference to changes in the
level of one-month LIBOR, subject to the effects of the Net Funds Cap. Although
the Pool II Mortgage Interest Rates also are subject to adjustment, the Pool II
Mortgage Interest Rates with respect to most of the Pool II Loans adjust less
frequently than the Class A-7 Pass- Through Rate and adjust by reference to
either the London Interbank Offered Rate, which will be calculated differently
for the Pool II Loans and the Class A-7 Certificates, or the Treasury Index
which will not necessarily correspond to changes in one-month LIBOR. Changes in
one-month LIBOR or changes in the LIBOR Index or the Treasury Index may not
correlate to each other or to changes in prevailing interest rates. It is
possible that an increased level of one- month LIBOR could occur simultaneously
with a lower level of prevailing interest rates, which would be expected to
result in faster prepayments, thereby reducing the weighted average life of the
Class A-7 Certificates.
Certain of the Pool II Loans were originated with initial Pool II Mortgage
Interest Rates that were based on competitive conditions and did not equal the
sum of the applicable Index and the related Gross Margin. As a result, the Pool
II Mortgage Interest Rates on such Pool II Loans are more likely to adjust on
their first, and possibly subsequent, Change Dates, subject to the effects of
the Periodic Rate Cap and the Lifetime Cap. Because the Class A-7 Pass-Through
Rate is limited by the Net Funds Cap on each Remittance Date, limits on changes
in the Pool II Mortgage Interest Rates of the Pool II Loans may limit changes in
the Class A-7 Pass-Through Rate.
The Net Funds Cap on a Remittance Date will depend, in part, on the weighted
average of the then-current Pool I and Pool II Mortgage Interest Rates. If the
Pool I or Pool II Loans bearing higher Mortgage Interest Rates were to prepay,
the weighted average Mortgage Interest Rate of the Pool I or Pool II Loans, as
the case may be, and consequently the Net Funds Cap, would be lower than
otherwise would be the case. As of the Cut-Off Date, the weighted average
maximum Net Funds Cap is approximately _____%.
The projected last Remittance Dates for the Class A-1, Class A-2, Class A-3,
Class A-4, Class A-5, Class A-6, Class A- 7, Class A-8 and Class A-9
Certificates are ____________, -------------, -----------, ------------,
- ------------, _____________, _____________, ___________ and ____________,
respectively. The projected last Remittance Date for the Class A-6, Class A-7,
Class A-8 and Class A-9 Certificates is the Remittance Date following the latest
date upon which a Loan in the related Pool matures. The projected last
Remittance Date for the Class A-1, Class A-2, Class A-3, Class A-4 and Class A-5
Certificates is the date on which the Principal Balance of the respective Class
would be reduced to zero, assuming that no prepayments are received on the Pool
I Loans, that payment of principal of and interest on each of the Pool I Loans
is timely received, each Class of Pool I Certificates receives payments of
principal as described herein and the Spread Amount is equal to zero. The
weighted average lives of the Class A Certificates are likely to be shorter than
would be the case if payments actually made on the Loans conformed to the
foregoing assumptions, and the final Remittance Dates with respect to each Class
of Class A Certificates could occur significantly earlier than the last
projected Remittance Dates because (i) Net Monthly Excess Spread will be used to
make accelerated payments of principal (i.e., Subordination Increase Amounts),
(ii) prepayments are likely to occur and (iii) the Servicer or Certificate
Guaranty Insurance may purchase all of the Loans under the limited circumstances
described herein.
"Weighted average life" refers to the average amount of time that will elapse
from the date of issuance of a security until each dollar of principal of such
security will be repaid to the investor. The weighted average lives of the Class
A Certificates will be influenced by the priorities established in the
Agreement, and by the rate at which principal payments on the Loans in the
related Pool are paid, which may be in the form of scheduled amortization or
prepayments (for this purpose, the term "prepayment" includes Principal
Prepayments, Curtailments, FHA Payments and liquidations due to default).
Prepayments on mortgage loans are commonly measured relative to a prepayment
standard or model. The model used in this Prospectus Supplement (the "Constant
Prepayment Rate" or "CPR") represents an assumed annualized rate of prepayment
relative to the then outstanding principal balance on a pool of new mortgage
loans.
<PAGE>
The following tables have been prepared assuming that Pools I, II, III and IV
are comprised of loan groups having the following characteristics:
POOL I
Mortgage Assumed Aggregate Original Remaining Assumed
Interest Rate Outstanding Term to Term to Delivery
Principal Balance Maturity Maturity of
as of the Subsequent
Cut-off Date Loans
- -------------------------------------------------------------------------------
1.
2.
3.
4.
5.
6.
7.
8.
<PAGE>
<TABLE>
<CAPTION>
POOL II
Index Assumed
Index Aggregate
Outstanding Assumed
Mortgage Principal Original Remaining Gross Gross Number Change Delivery
Interest Balance Term to Term to Gross Life Life of Months Date of
Rate as of the Maturity Maturity Margin Cap Floor to Next Frequency Subsequent
Cut-off Interest Loans
Date Change
Date
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
</TABLE>
<PAGE>
POOL III
<TABLE>
<CAPTION>
Assumed
Mortgage Aggregate Original Remaining Assumed
Interest Rate Outstanding Term to Term to Delivery
Principal Balance Maturity Maturity of
as of the Subsequent
Cut-off Date Loans
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1.
2.
3.
4.
</TABLE>
<TABLE>
<CAPTION>
POOL IV
Assumed Assumed
Aggregate Delivery
Mortgage Outstanding Original Remaining of
Interest Rate Principal Term to Term to Subsequent
Balance as Maturity Maturity Loans
of the
Cut-off Date
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1.
2.
3.
</TABLE>
The following tables also have been prepared assuming (i) all distributions with
respect to the Certificates will be made at the scheduled times as described
below under "Description of the Certificates--Distributions on the Class A
Certificates," (ii) distributions on the Class A Certificates are received in
cash on the 15th day of each month, commencing ______, 1997, (iii) prepayments
represent payment in full of individual Loans and are received on the last day
of each month (commencing in _______, 1997) and include 30 days' interest
thereon at the applicable Mortgage Interest Rate, (iv) the Servicing Fee and
Contingency Fee for each Loan will be 0.25% and 0.25% per annum, respectively,
of the principal balance thereof, (v) no delinquencies or defaults in payments
by Mortgagors of principal and interest on the Loans are experienced, (vi) no
right of optional termination is exercised except as noted below, (vii) the
Class A Certificates are purchased on ________, 1997, and (viii) the Specified
Subordinated Amount (as defined herein under "Description of the
Certificates--Spread Amount") with respect to Pool I, Pool II, Pool III and Pool
IV initially is set at the highest level specified by the Agreement and
thereafter decreases in accordance with the provisions of the Agreement.
For each Class of Class A Certificates, the scenario presented below assumes
that the Representative exercises its option to establish the Pre-Funding
Account and that the Pre-Funded Amount equals its maximum permitted amount. The
scenario also assumes that the entire Pre-Funded Amount is used to purchase
Subsequent Loans by ______, 1997.
Based upon the foregoing assumptions, some or all of which are unlikely to
reflect actual experience, the following table indicates the projected weighted
average life of each Class of Class A Certificates under the following
scenarios.
SCENARIO POOL POOL II POOL III POOL IV
HEP% CPR% CPR% CPR%
I
II
III
IV
V
The Pool I Certificates are priced at various Home Equity Prepayment ("HEP")
assumptions. HEP assumes that a pool of loans prepays in the first month at a
constant prepayment rate that corresponds in CPR to one-tenth the given HEP
percentage and increases by an additional one-tenth each month thereafter until
the tenth month, where it remains at a CPR equal to the given HEP percentage.
The Pool IV Certificates are priced at various CPR assumptions that occur
beginning in ___________, 199__, due to the prepayment lockout features of the
Multifamily Loans. Pools II and III are priced at various CPR assumptions that
occur beginning in __________, 199__.
CLASS A-1 CERTIFICATES
WEIGHTED EARLIEST
SCENARIO AVERAGE RETIREMENT
LIFE AT
SERVICER'S
(YEARS)
OPTION(1)
I
II
III(2)
IV
V
CLASS A-2 CERTIFICATES
WEIGHTED EARLIEST
AVERAGE RETIREMENT
LIFE AT
SCENARIO SERVICER'S
(YEARS)
OPTION(1)
I
II
III(2)
IV
V
CLASS A-3 CERTIFICATES
SCENARIO Weighted Earliest
Average Retirement
Life at
Servicer's
(YEARS)
OPTION(1)
I
II
III(2)
IV
V
CLASS A-4 CERTIFICATES
SCENARIO Weighted EARLIEST
Average RETIREMENT
Life AT
SERVICER'S
(YEARS)
OPTION(1)
I
II
III(2)
IV
V
CLASS A-5 CERTIFICATES
SCENARIO WEIGHTED Earliest
AVERAGE Retirement
LIFE at
Servicer's
(YEARS)
OPTION(1)
I
II
III(2)
IV
V
CLASS A-6 CERTIFICATES
SCENARIO WEIGHTED Earliest
AVERAGE Retirement
LIFE at
Servicer's
(YEARS)
OPTION(1)
I
II
III(2)
IV
V
CLASS A-7 CERTIFICATES
SCENARIO WEIGHTED Earliest
AVERAGE Retirement
LIFE at
Servicer's
(YEARS)
OPTION(1)
I
II
III(2)
IV
V
CLASS A-8 CERTIFICATES
SCENARIO WEIGHTED Earliest
AVERAGE Retirement
LIFE at
Servicer's
(YEARS)
OPTION(1)
I
II
III(2)
IV
V
CLASS A-9 CERTIFICATES
SCENARIO WEIGHTED Earliest
AVERAGE Retirement
LIFE at
Servicer's
(YEARS)
OPTION(1)
I
II
III(2)
IV
V
- ------------------------
(1)Assuming early termination of the related Pool of Loans when the aggregate
principal balance thereof declines to a level equal to 10% of the sum of (i) the
Original Pool Principal Balance and (ii) the original Pre-Funded Amount.
(2)Pricing Assumptions
<PAGE>
DESCRIPTION OF THE CERTIFICATES
The Class A Certificates will be issued pursuant to the Agreement, a copy of
which will be included as an exhibit to a Current Report on Form 8-K to be filed
by the Representative on behalf of the Trust within 15 days following the
Closing Date. The following summaries describe material provisions of the
Certificates and the Agreement, but do not purport to be complete and are
subject to, and are qualified in their entirety by reference to, all of the
provisions of the Agreement. Terms used herein and not otherwise defined will
have the meanings set forth in the Agreement.
GENERAL
The Class A-1, Class A-2, Class A-3, Class A-4, Class A-5 and Class A-6
Certificates generally will represent the right to receive payments measured by
amounts distributable on or with respect to the Home Equity Loans in Pool I. The
Class A-7 Certificates generally will represent the right to receive payments
measured by amounts distributable on or with respect to the Home Equity Loans in
Pool II (provided, however, that such Certificates will be entitled to receive
certain interest payments received on the Pool I Home Equity Loans as described
below under "The Agreement-- Payments on the Loans"). The Class A-8 Certificates
generally will represent the right to receive payments measured by amounts
distributable on or with respect to the Home Improvement Loans in Pool III. The
Class A-9 Certificates generally will represent the right to receive payments
measured by amounts distributable on or with respect to the Multifamily Loans in
Pool IV. The Trust also will issue the Class R Certificates. Only the Class A
Certificates are offered hereby.
However, as a result of the cross-support provisions described herein, the
holders of each Class of Certificates may receive cash from any Loan, either by
direct allocation or credit support from another Pool. See "--Cross Support
Provisions." Also, amounts, if any, on deposit in the Spread Account will be
available to cover shortfalls in amounts otherwise distributable to
Certificateholders, regardless of Pool.
The Certificates will not represent obligations of the Representative,
the Originators or any of their respective affiliates. The Class A Certificates
will be issued in book-entry form in minimum denominations of $1,000 original
principal amount and integral multiples of $1,000 in excess thereof.
Definitive Class A Certificates, if issued, will be transferable and
exchangeable at the corporate trust office of the Trustee or, at the election of
the Trustee, at the office of a Certificate Registrar appointed by the Trustee.
No service charge will be made for any registration of exchange or transfer, but
the Trustee may require payment of a sum sufficient to cover any tax or other
governmental charge.
The assets of the Trust will consist of (a) the Home Equity Loans, Home
Improvement Loans and, Multifamily Loans that from time to time are subject to
the Agreement; (b) amounts that from time to time are required by the Agreement
to be deposited in the Certificate Account, the Principal and Interest Account,
the Expense Account, the Insurance Account, the FHA Premium Account, the Spread
Account, the Pre-Funding Account and the Capitalized Interest Account, if any,
or to be invested in Permitted Investments; (c) all rights under any insurance
policy covering a Loan or the related Mortgaged Property; (d) property and any
proceeds thereof acquired by foreclosure of a Loan, deed in lieu of foreclosure
or a comparable conversion; and (e) the Certificate Guaranty Insurance Policies
and any proceeds thereof.
DISTRIBUTIONS ON THE CLASS A CERTIFICATES
On the 15th day of each month or, if such 15th day is not a Business Day, the
first Business Day immediately following, commencing in _______, 1997 (each such
day being a "Remittance Date," provided, however, that in no event shall the
Remittance Date occur less than three business days following the Determination
Date), until the Principal Balance of each Class of Class A Certificates has
been reduced to zero, the Trustee or Paying Agent will be required to distribute
to the persons in whose name a Class A Certificate is registered at the close of
business on the last day of the month immediately preceding the month of the
related Remittance Date (the "Record Date"), such Holder's Percentage Interest
multiplied by that portion of the Pool I, Pool II, Pool III and Pool IV
Distribution Amount, as the case may be, allocable to the respective Class of
Class A Certificates for such Remittance Date. Any Pre-Funded Amount remaining
at the close of business on _________, 1997 will be distributed by or on behalf
of the Trustee on the Special Remittance Date (together with __ days' accrued
interest (or, in the case of the Class A-7 Certificates, __ days' accrued
interest) at the applicable Pass-Through Rates on the amount of such prepayment)
to the Classes of Class A Certificates then entitled to receive payments of
principal as described herein under "--The Pool I, Pool II, Pool III and Pool IV
Distribution Amounts." Such distribution will be made to each person in whose
name a Class A Certificate of any such Class is registered on _________, 1997.
For so long as the Class A Certificates are in book-entry form with DTC, the
only "Holder" of the Class A Certificates will be Cede. See "--Book-Entry
Registration of Class A Certificates."
The "Class Principal Balance" of a Class of Certificates as of any date of
determination is the original principal balance of such Class of Certificates,
less (i) the sum of all amounts (including the principal portion of any related
Insured Payments and, with respect to the Pool III Certificates, FHA Payments)
previously distributed to the Trustee as principal on the applicable Class of
Certificates, and (ii) any actual loss of principal suffered by the related
Class A Certificateholders due to the failure of the Certificate Guaranty
Insurer to perform its obligations under the related Certificate Guaranty
Insurance Policy. Any such loss with respect to a Loan will be allocated among
all then outstanding Classes of Class A Certificates pro rata based upon the
then outstanding Principal Balances of such Classes.
A Class A Certificateholder's "Percentage Interest" is that fraction, expressed
as a percentage, the numerator of which is the original denomination of such
Class A Certificateholder's Class A Certificate and the denominator of which is
the original aggregate Principal Balance of the respective Class of Class A
Certificate.
A "Business Day" is any day other than (i) a Saturday or Sunday or (ii) a day on
which banking institutions in the States of New York, New Jersey or
__________________ are authorized or obligated by law or executive order to be
closed.
THE POOL I, POOL II, POOL III AND POOL IV DISTRIBUTION AMOUNTS
The "Pool I Distribution Amount," "Pool II Distribution Amount," "Pool III
Distribution Amount," and "Pool IV Distribution Amount," for any Remittance Date
will be equal to the sum of (i) the Pool I, Pool II, Pool III or Pool IV Current
Interest Requirement, as the case may be, (ii) the Pool I, Pool II, Pool III or
Pool IV Principal Distribution Amount, as the case may be, (iii) the Pool I,
Pool II, Pool III or Pool IV Carry-Forward Amount, if any, as the case may be,
and (iv) any amount received by the Trustee from the Servicer that constitutes a
Monthly Advance with respect to a Pool I, Pool II, Pool III and Pool IV Loan, as
the case may be, and that is recoverable and sought to be recovered as a
voidable preference by a trustee in bankruptcy pursuant to the Bankruptcy Code
in accordance with a final, nonappealable order of a court having competent
jurisdiction. The Pool II Distribution Amount does not include any
Certificateholders' LIBOR Interest Carryover.
On any Remittance Date the Class A-1, Class A-2, Class A-3, Class A-4, Class
A-5, Class A-6, Class A-7, Class A-8 and Class A-9 Current Interest Requirements
will equal 30 days' interest (or, in the case of the Class A-7 Certificates,
____ days' interest for the ________, 1997 Remittance Date and the actual number
of days since the preceding Remittance Date for each Remittance Date
thereafter), at the Class A-1, Class A-2, Class A-3, Class A-4, Class A-5, Class
A-6, Class A-7, Class A-8 and Class A-9 Pass-Through Rate on the Class A-1,
Class A-2, Class A-3, Class A-4, Class A-5, Class A-6, Class A-7, Class A-8 and
Class A-9 Principal Balance, as the case may be, immediately prior to the
related Remittance Date (calculated on the basis of a 360-day year consisting of
twelve 30-day months or, in the case of the Class A-7 Certificates, the actual
number of days elapsed since interest was last paid). On any Remittance Date,
(i) the "Pool I Current Interest Requirement" will equal the sum of the related
Class A-1, Class A-2, Class A-3, Class A-4, Class A-5 and Class A-6 Current
Interest Requirements, (ii) the "Pool II Current Interest Requirement" will
equal the Class A-7 Current Interest Requirement, (iii) the "Pool III Current
Interest Requirement" will equal the Class A-8 Current Interest Requirement, and
(iv) the Pool IV Current Interest Requirement will equal the Class A-9 Current
Interest Requirement. Notwithstanding the foregoing, if a principal prepayment
is made to a Class of Class A Certificates on the Special Remittance Date, each
such Class also will receive on such date __ days' interest (or, in the case of
the Class A-7 Certificates, __days' interest) at the applicable Pass-Through
Rate on the amount of such prepayment. Further, the Current Interest Requirement
for each such Class for the _______, 1997 Remittance Date will be based on 30
days' interest (or, in the case of the Class A-7 Certificates, the actual number
of days elapsed since the last Remittance Date) on the related Principal Balance
on ________, 1997 after giving effect to such principal prepayment.
For each Remittance Date, the Class A-7 Pass-Through Rate will equal, subject to
a maximum rate equal to the Net Funds Cap, a per annum rate equal to the sum of
LIBOR and ____% (or ____% for each Remittance Date occurring after the Optional
Servicer Termination Date). In no event, however, will the Class A-7
Pass-Through Rates exceed ____% per annum.
If on any Remittance Date, the Pass-Through Rate for the Class A-7
Certificates is based upon the Net Funds Cap, the excess of (i) the amount of
interest the Class A-7 Certificates would be entitled to receive on such
Remittance Date at a rate equal to LIBOR plus the applicable margin (but in no
event greater than ___%) over (ii) the amount of interest such Class will
receive on such Remittance Date at the Net Funds Cap, together with the unpaid
portion of any such excess from prior Remittance Dates (and interest accrued
thereon at the then applicable Pass-Through Rate, without giving effect to the
Net Funds Cap) is referred to herein as the "Certificateholders' LIBOR Interest
Carryover." Any Certificateholders' LIBOR Interest Carryover will be paid on
future Remittance Dates only as set forth herein under "The Agreement--Flow of
Funds." The ratings of the Class A-7 Certificates do not address the likelihood
of the payment of the amount of any Certificateholder's LIBOR Interest
Carryover. Certificate Guaranty Insurance does not insure payment of
Certificateholder's LIBOR Interest Carryover.
On any Remittance Date, the "Pool I Carry-Forward Amount," the "Pool II
Carry-Forward Amount," the "Pool III Carry-Forward Amount" and the "Pool IV
Carry-Forward Amount" will equal the sum of (i) the amount, if any, by which (x)
the Pool I, Pool II, Pool III or Pool IV Distribution Amount, as the case may
be, for the immediately preceding Remittance Date exceeded (y) the amount of the
actual distribution to the Holders of the Pool I, Pool II, Pool III and Pool IV
Certificates on such Remittance Date (less the amount of Insured Payments, if
any, on such date), and (ii) interest on the amount, if any, described in clause
(i) at one-twelfth the Class A-1, Class A-2, Class A-3, Class A-4, Class A-5 or
Class A-6 Pass-Through Rate, as the case may be, with respect to the Pool I
Certificates, the Class A-7 Pass-Through Rate, with respect to the Pool II
Certificates, the Class A-8 Pass-Through Rate, with respect to the Pool III
Certificates, and the Class A-9 Pass-Through Rate, with respect to the Pool IV
Certificates.
The Pool I, Pool II, Pool III and Pool IV Carry-Forward Amounts are primarily
intended to measure the amount of money for which the Certificate Guaranty
Insurer is entitled to reimbursement. As set forth herein, the Certificate
Guaranty Insurer is subrogated to the rights of Class A Certificateholders to
receive payments under the Class A Certificates to the extent of any Insured
Payments made under the applicable Certificate Guaranty Insurance Policy. See
"The Certificate Guaranty Insurance Policies and The Certificate Guaranty
Insurer." This right of subrogation, however, is subordinate to the right of the
Class A Certificateholders to receive the entire Pool I, Pool II, Pool III and
Pool IV Distribution Amount, as the case may be, on each Remittance Date.
On any Remittance Date, the "Pool I Principal Distribution Amount," the "Pool II
Principal Distribution Amount," the "Pool III Principal Distribution Amount" and
the "Pool IV Principal Distribution Amount" will equal the excess of:
(X) the sum, without duplication, of the following:
(i) each payment of principal received by the Servicer or any
Subservicer (exclusive of Curtailments, Principal Prepayments and
amounts described in clause (iii) hereof) during the related Due
Period with respect to the Pool I, Pool II, Pool III or Pool IV Loans,
as the case may be,
(ii) all Curtailments and all Principal Prepayments received by the
Servicer or any Subservicer during the related Due Period with respect
to the Pool I, Pool II, Pool III or Pool IV Loans, as the case may be,
(iii) the principal portion of all Insurance Proceeds, Released
Mortgaged Property Proceeds and Liquidation Proceeds net of certain
reimbursements to the Servicer and amounts required by law to be
released to the related Mortgagor ("Net Liquidation Proceeds")
received by the Servicer or any Subservicer during the related Due
Period with respect to the Pool I, Pool II, Pool III or Pool IV Loans,
as the case may be (and, with respect to Pool III, the principal
portion of all FHA Payments received by the Claims Administrator with
respect to a 90 Day Delinquent FHA Loan),
(iv) that portion of the purchase price for any Pool I, Pool II, Pool
III or Pool IV Loan, as the case may be, repurchased pursuant to the
Agreement which represents principal and any Substitution Adjustments,
in either case to the extent received by the Trustee as of the related
Determination Date,
(v) any proceeds representing principal received by the Trustee in
connection with the liquidation of Pool I, Pool II, Pool III or Pool
IV or the termination of the Trust,
(vi) the amount of any Subordination Deficit (as defined below under
"--Spread Amount") with respect to Pool I, Pool II, Pool III or Pool
IV, as the case may be, for such Remittance Date,
(vii)any moneys released from the Pre-Funding Account, if any, on the
_____, _____, and _______, 1997 Remittance Date as a prepayment of the
Pool I, Pool II, Pool III or Pool IV Certificates, as the case may be
and
(viii) the amount of any Subordination Increase Amount (as defined
below under "--Spread Amount") with respect to Pool I, Pool II, Pool
III or Pool IV, as the case may be, for such Remittance Date, OVER
(Y) the amount of any Subordination Reduction Amount (as defined below
under "--Spread Amount") with respect to Pool I, Pool II, Pool III or
Pool IV, as the case may be, for such Remittance Date.
In the event any amounts referenced in clause (iv) of the definition of Pool I,
Pool II, Pool III or Pool IV Distribution Amount or clause (iv) of the
definition of Pool I, Pool II, Pool III or Pool IV Principal Distribution Amount
are covered by Insured Payments or any portion thereof, payment of such amounts
will be disbursed to the trustee in bankruptcy named in the final order of the
court exercising jurisdiction and not to any Class A Certificateholder directly
unless such Class A Certificateholder has returned principal or interest paid on
a Class A Certificate to such trustee in bankruptcy, in which case such payment
will be disbursed to such Class A Certificateholder.
The definitions of the Pool I, Pool II, Pool III and Pool IV Principal
Distribution Amounts are determined with regard to actual amounts received on
the Pool I, Pool II, Pool III and Pool IV Loans, respectively, and without any
regard to a schedule for the recovery of principal.
Pursuant to the Certificate Guaranty Insurance Policies, the Certificate
Guaranty Insurer has agreed to make Insured Payments on each Remittance Date.
See "The Certificate Guaranty Insurance Policies and The Certificate Guaranty
Insurer." THE CERTIFICATE GUARANTY INSURER DOES NOT INSURE PAYMENT OF
CERTIFICATEHOLDERS' LIBOR INTEREST CARRYOVER.
The Agreement provides that the Trustee or Paying Agent will (i) receive as
attorney-in-fact of each Holder of the Class A Certificates any Insured Payment
from the Certificate Guaranty Insurer and (ii) disburse such payment pursuant to
the Agreement. The Agreement provides that to the extent the Certificate
Guaranty Insurer makes Insured Payments, either directly or indirectly (as by
paying through the Trustee), to the Holders of the Class A Certificates, the
Certificate Guaranty Insurer will be subrogated to the rights of such Holders
with respect to such Insured Payments, will be deemed, to the extent of the
payments so made, to be a registered Holder of Class A Certificates and will
receive reimbursement for such Insured Payments as provided in the Agreement,
but only from the sources (other than Insured Payments) and in the manner
provided in the Agreement.
Each Holder of a Class A Certificate is required by the Agreement to notify the
Trustee promptly upon the receipt of a court order to the effect that amounts
previously received by such Class A Certificateholder and described in clause
(iv) of the definition of Pool I, Pool II, Pool III or Pool IV Principal
Distribution Amount, as the case may be, or clause (iv) of the definition of
Pool I, Pool II, Pool III or Pool IV Distribution Amount, as the case may be,
constitute voidable preferences and to provide a copy of such order with such
notice.
As set forth above, clause (i) of the definition of Pool I, Pool II, Pool III
and Pool IV Principal Distribution Amounts includes only payments of principal
actually received by the Servicer or any Subservicer. Neither the Servicer nor
the Certificate Guaranty Insurer is required to advance any delinquent payments
of principal. Accordingly, the Certificateholders will not receive delinquent
payments of principal until such time as the delinquency is cured or, if such
delinquency is not cured, following the time such Loan becomes a Liquidated Loan
or, with respect to 90 Day Delinquent FHA Loans, following the time the related
FHA Payment is received.
CROSS-SUPPORT PROVISIONS AND SPREAD AMOUNT
As a result of the cross-support provisions described below, on each
Remittance Date the "Monthly Excess Spread" for each Pool of Loans (I.E., an
amount generally equal to the interest received on the Loans remaining after
each Class of Certificates in the related Pool has been allocated its interest
for such Remittance Date and certain expenses of the Trust have been paid) and
certain other amounts will be available to fund any shortfalls in amounts
required to be distributed to Certificates of the related Pool and for
Certificates of any other Pool. Any remaining Monthly Excess Spread and such
other amounts, net of certain amounts used to reimburse the Certificate Guaranty
Insurer, will be applied in the following order of priority on such Remittance
Date:
(i) first, to make accelerated payments of principal to the
Class A Certificates of the related Pool until the Subordinated Amount
(as defined below) of such Pool equals its Specified Subordinated
Amount (as defined below);
(ii) second, to make accelerated payments of principal to the
Certificates of the other Pools until the Subordinated Amount of each
such Pool equals its related Specified Subordinated Amount; and
(iii) third, to reimburse the Servicer for certain amounts owing to it,
to pay the holders of the Class A-7 Certificates any
Certificateholders' LIBOR Interest Carryover owing for such Remittance
Date and all prior Remittance Dates, and to pay any remainder to the
holders
of the Class R Certificates.
Notwithstanding the foregoing, if the level of delinquencies for the Pool III
Loans exceeds certain specified levels, any Monthly Excess Spread relating to
the Pool III Loans remaining after the application described in clause (i) above
will be deposited into the Spread Account, until the Spread Account reaches
certain specified levels. The amounts so deposited will be available to fund any
Insured Payments relating to the Class A Certificates otherwise required to be
made on a Remittance Date, without distinction as to Pool.
The acceleration feature described above is intended to create, with respect to
each Pool of Loans, an amount (the "Spread Amount"), resulting from, and
generally equal to, the excess of the aggregate principal balances of the Loans
of the related Pool, over the principal balances of the Certificates of the
related Pool. Applying Monthly Excess Spread to payment of principal on the
Class A Certificates has the effect of accelerating the amortization of the
Class A Certificates relative to the amortization of the Loans. As a result of
the foregoing, the holders of each Class of Certificates may receive cash from
any Loan, either by direct allocation or credit support from another Pool.
For any Remittance Date and for each Pool, the difference, if any, between (x)
the sum of (i) the aggregate principal balances of the Loans of the related Pool
as of the close of business on the last day of the related Due Period and (ii)
any amount on deposit in the Pre-Funding Account at such time and allocated to
the related Pool and (y) the aggregate principal balances of the Certificates of
the related Pool after making all distributions on such Remittance Date is the
"Subordinated Amount" with respect to such Pool as of such Remittance Date.
Pursuant to the Agreement and an insurance agreement relating to the
Certificates among the Certificate Guaranty Insurer, The Money Store Inc., the
Originators and the Trustee (the "Insurance Agreement"), Monthly Excess Spread
will be applied as accelerated payments of principal on the Class A Certificates
until the Subordinated Amount for each Pool has increased to the level required
by the Agreement. The required level of the Subordinated Amount with respect to
a Pool of Loans and Remittance Date is the "Specified Subordinated Amount" with
respect to such Pool of Loans and Remittance Date. The Agreement generally
provides that the Specified Subordinated Amount may, over time, decrease, or
increase, subject to certain floors, caps and triggers. In addition, the level
of the Specified Subordinated Amount with respect to each Pool of Loans may be
increased to a limited extent in connection with the delivery of Subsequent
Loans to the related Pool. Following the Funding Period, cash up to the amount
of any such increase may be deposited in the Spread Account.
The Agreement also provides that, except in limited circumstances, if the
aggregate amount of Monthly Excess Spread applied to payments of principal on
the Certificates exceeds the amount specified therein (such amount the "Maximum
Subordinated Amount") no further Monthly Excess Spread will be applied to
payment of principal on the Certificates and the Specified Subordinated Amount
will thereafter be zero.
If with respect to any Pool of Loans and any Remittance Date, the Subordinated
Amount exceeds the related Specified Subordinated Amount (the amount of such
excess being referred to as the "Excess Subordinated Amount" with respect to
such Pool of Loans and Remittance Date), then any amounts relating to principal
which would otherwise be distributed to the Class A Certificates of the related
Pool on such Remittance Date will instead be distributed to Certificates of
other Pools in an amount up to such Excess Subordinated Amount. The amount of
principal received on a Pool of Loans and transferred to the other Pools
pursuant to this provision is referred to as the "Subordination Reduction
Amount" with respect to the Pool from which such amounts are being transferred.
The Subordinated Amount for a Pool constitutes the first level of credit support
for the related Certificates. If any Loan becomes a Liquidated Loan, the Net
Liquidation Proceeds related thereto and allocated to principal may be less than
the principal balance of the related Loan. The amount of any such insufficiency
is an "Unrecovered Portion." The occurrence of an Unrecovered Portion will
reduce the Subordinated Amount with respect to the related Pool of Loans.
However, Certificateholders of the related Pool will be entitled to receive
Monthly Excess Spread, either from the related Pool of Loans or the other Pools,
in an amount equal to the Unrecovered Portion, subject to the limits described
above. Therefore, so long as sufficient Monthly Excess Spread is available
(either on the current Remittance Date or on future Remittance Dates),
Certificateholders will not realize a loss with respect to an Unrecovered
Portion.
If insufficient Monthly Excess Spread is available to pay Unrecovered Portions,
the related Pool may experience a Subordination Deficit. The Agreement defines a
"Subordination Deficit" with respect to a Pool of Loans and Remittance Date to
be the amount, if any, by which (x) the Principal Balances of the Class A
Certificates of the related Pool, after taking into account all distributions to
be made on such Remittance Date (other than amounts payable with respect to
principal under the applicable Certificate Guaranty Insurance Policy) exceeds
(y) the aggregate principal balances of the related Pool of Loans as of the
close of business on the last day of the prior Due Period plus the amount, if
any, on deposit in the Pre-Funding Account on such date and allocated to such
Pool of Loans. The Trustee is required to make a claim for an Insured Payment
under the related Certificate Guaranty Insurance Policy with respect to any
Remittance Date as to which the Trustee has determined that a Subordination
Deficit will occur for the purpose of applying the proceeds of such Insured
Payment as a payment of principal to the Certificateholders of the related Pool
on such Remittance Date. The Certificate Guaranty Insurance Policies are thus
similar to the provisions described above insofar as the Certificate Guaranty
Insurance Policies guarantee ultimate, rather than current, payment of the
amounts of any Unrecovered Portions.
Investors in the Class A Certificates should realize that, under extreme loss or
delinquency scenarios applicable to the related Pool of Loans, so long as a
Subordination Deficit has not resulted, they may temporarily receive no
distributions of principal.
CREDIT ENHANCEMENT DOES NOT APPLY TO PREPAYMENT AND CERTAIN
OTHER RISKS
In general, the protection afforded by the subordination provisions and by the
Certificate Guaranty Insurance Policies is protection for credit risk and not
for prepayment risk and does not apply to the Certificateholders' LIBOR Interest
Carryover. The subordination provisions may not be adjusted, nor may a claim be
made under the Certificate Guaranty Insurance Policies to guarantee or insure
that any particular rate of prepayment is experienced by the Trust.
[THE GUARANTY
As additional credit support for the Class ___ Certificates, the Class ___
Certificateholders are entitled to receive on each Remittance Date the amount
equal to the Guaranty Payments, if any, under the Guaranty provided by The Money
Store Inc. The "Guaranty Payment" for any Remittance Date will equal the
difference, if any, between the Pool ___ Distribution Amount allocable to the
Class ___ Certificates and the portion of the Pool ___ Available Remittance
Amount allocated to the Class ___ Certificates on such Remittance Date, but no
more than $___________ in the aggregate.
The Guaranty will be an unsecured general obligation of The Money Store Inc. and
will not be supported by any letter of credit or other credit enhancement
arrangement. The Guaranty will not benefit in any way, or result in any payment
to, any Certificateholders other than the Class ___ Certificateholders.
As compensation for providing the Guaranty, The Money Store Inc. will be
entitled to receive a fee (the "Guaranty Fee" equal to ________).]
REPORTS TO CLASS A CERTIFICATEHOLDERS
On each Remittance Date, the Trustee will be required to forward to each Class A
Certificateholder (which will be Cede, as registered Holder of the Class A
Certificates and the nominee of DTC, unless and until Definitive Certificates
are issued), a statement which will set forth, among other things:
(a) the Pool I, Pool II, Pool III and Pool IV Distribution Amounts on
such Remittance Date, in the aggregate and by component and listed
separately for the portions relating to each Class of Class A
Certificates;
(b) the Pool I, Pool II, Pool III and Pool IV Principal Distribution
Amounts for such Remittance Date, in the aggregate and listed
separately for the portion relating to each Class of Class A
Certificates;
(c) the Class A-1, Class A-2, Class A-3, Class A-4, Class A-5, Class
A-6, Class A-7, Class A-8 and Class A-9 Current Interest Requirements
for such Remittance Date;
(d) the total amount of any Insured Payments included in the Pool I,
Pool II, Pool III and Pool IV Distribution Amount on such Remittance
Date, listed separately for each Class of Class A Certificates;
(e) the Subordinated Amount and Specified Subordinated Amount for such
Remittance Date, listed separately for each Pool;
(f) the Class A-1, Class A-2, Class A-3, Class A-4, Class A-5, Class
A-6, Class A-7, Class A-8 and Class A-9 Principal Balances and the
Class A-1, Class A-2, Class A-3, Class A-4, Class A-5, Class A-6,
Class A-7, Class A-8 and Class A-9 Principal Factors after giving
effect to the distribution of the Pool I, Pool II, Pool III and Pool
IV Principal Distribution Amounts on such Remittance Date;
(g) the number and aggregate Principal Balances of Pool I, Pool II,
Pool III and Pool IV Loans delinquent (i) 31 to 59 days, (ii) 60 days
to 89 days and (iii) 90 days or more as of the end of the related Due
Period;
(h) the number and aggregate Principal Balances of all Pool I, Pool
II, Pool III and Pool IV Loans in foreclosure or other similar
proceedings and the number and aggregate Principal Balance of all Pool
I, Pool II, Pool III and Pool IV Loans relating to any REO Properties;
(i) the applicable rate of LIBOR for such Remittance Date;
(j) the Class A-7 Pass-Through Rate for such Remittance Date and if
such Pass-Through Rate was based on the Net Funds Cap, what it would
be if based on LIBOR plus the applicable margin;
(k) the Net Funds Cap for such Remittance Date;
(l) if the Class A-7 Pass-Through Rate for such Remittance Date is
based on the Net Funds Cap, the amount of any Certificateholders'
LIBOR Interest Carryover for such Remittance Date;
(m) the amount of the distribution, if any, allocable to
Certificateholders' LIBOR Interest Carryover and the amount of any
unpaid Certificateholders' LIBOR Interest Carryover for all prior
Remittance Dates after giving effect to such distribution; and
(n) with respect to the FHA Loans, the dollar amounts of Claims filed,
paid and denied during the related Due Period.
As to any Remittance Date, the "Class A-1 Principal Factor," the "Class A-2
Principal Factor," the "Class A-3 Principal Factor," the "Class A-4 Principal
Factor," the "Class A-5 Principal Factor," the "Class A-6 Principal Factor," the
"Class A-7 Principal Factor," the "Class A-8 Principal Factor" and the "Class
A-9 Principal Factor" will be a fraction, expressed as a percentage, the
numerator of which is the Class A-1, Class A-2, Class A-3, Class A-4, Class A-5,
Class A-6, Class A-7, Class A-8 and Class A-9 Principal Balance, as the case may
be (after giving effect to the distribution of the Pool I, Pool II, Pool III and
Pool IV Principal Distribution Amount, as the case may be, on such Remittance
Date), and the denominator of which is the original Class A-1, Class A-2, Class
A-3, Class A-4, Class A-5, Class A-6, Class A-7, Class A-8 or Class A-9
Principal Balance, as the case may be.
In the case of information furnished pursuant to clauses (a) through (c) above,
the amounts will be expressed as a dollar amount per Certificate with a $1,000
principal denomination.
Within 90 days after the end of each calendar year, the Trustee will be required
to mail to each person who at any time was a Class A Certificateholder during
such year, a statement containing the information set forth in clauses (a)-(c)
above aggregated for such calendar year, or, in the case of each person who was
a Class A Certificateholder for a portion of such calendar year, setting forth
such information for each month thereof.
All reports prepared by the Trustee will be based upon statements
supplied to the Trustee by the Servicer and the Claims Administrator.
BOOK-ENTRY REGISTRATION OF CLASS A CERTIFICATES
The Class A Certificates will initially be registered in the name of Cede, the
nominee of DTC. DTC is a limited-purpose trust company organized under the laws
of the State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code, and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Securities Exchange Act of 1934, as amended. DTC accepts securities for deposit
from its participating organizations ("Participants") and facilitates the
clearance and settlement of securities transactions between Participants in such
securities through electronic book-entry changes in accounts of Participants,
thereby eliminating the need for physical movement of certificates. Participants
include securities brokers and dealers, banks and trust companies and clearing
corporations and may include certain other organizations. Indirect access to the
DTC system is also available to others such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly ("Indirect Participants").
Class A Certificateholders who are not Participants but desire to purchase, sell
or otherwise transfer ownership of the Class A Certificates may do so only
through Participants (unless and until Definitive Class A Certificates are
issued). In addition, Class A Certificateholders will receive all distributions
of principal of, and interest on, the Class A Certificates from the Trustee
through the Participants. Class A Certificateholders will not receive or be
entitled to receive certificates representing their respective interests in the
Class A Certificates, except under the limited circumstances described below.
Unless and until Definitive Class A Certificates are issued, it is anticipated
that the only direct owner of the Class A Certificates will be Cede, as nominee
of DTC. Class A Certificateholders will not be "Holders" as that term is used in
the Agreement. Class A Certificateholders are only permitted to exercise the
rights of Holders indirectly through Participants, who in turn will exercise
rights through DTC.
While the Class A Certificates are outstanding (except under the circumstances
described below), under the rules, regulations and procedures creating and
affecting DTC and its operations (the "Rules"), DTC is required to make
book-entry transfers among Participants on whose behalf it acts with respect to
the Class A Certificates and is required to receive and transmit distributions
of principal of, and interest on, the Class A Certificates. Participants with
whom Class A Certificateholders have accounts with respect to Class A
Certificates are similarly required to make book-entry transfers and receive and
transmit such distributions on behalf of their respective Class A
Certificateholders. Accordingly, although Class A Certificateholders will not
possess certificates, the rules provide a mechanism by which Class A
Certificateholders will receive distributions and will be able to transfer their
interests.
Unless and until Definitive Class A Certificates are issued, Class A
Certificateholders who are not Participants may transfer ownership of Class A
Certificates only through Participants by instructing such Participants to
transfer Class A Certificates, by book-entry transfer, through DTC for the
account of the purchasers of such Class A Certificates, which account is
maintained with their respective Participants. Under the Rules and in accordance
with DTC's normal procedures, transfers of ownership of Class A Certificates
will be executed through DTC and the accounts of the respective Participants at
DTC will be debited and credited. Similarly, the respective Participants will
make debits or credits, as the case may be, on their records on behalf of the
selling and purchasing Class A Certificateholders.
Class A Certificates will be issued in registered form to Class A
Certificateholders, or their nominees, rather than to DTC (such Class A
Certificates being referred to herein as "Definitive Class A Certificates"),
only if (i) DTC or the Representative advises the Trustee in writing that DTC is
no longer willing or able to discharge properly its responsibilities as nominee
and depository with respect to the Class A Certificates and the Representative
or the Trustee is unable to locate a qualified successor or (ii) the
Representative, at its sole option, elects to terminate the book-entry system
through DTC. Upon issuance of Definitive Class A Certificates to Class A
Certificateholders, such Class A Certificates will be transferable directly (and
not exclusively on a book-entry basis) and registered holders will deal directly
with the Trustee with respect to transfers, notices and distributions.
DTC has advised the Representative and the Trustee that, unless and until
Definitive Class A Certificates are issued, DTC will take any action permitted
to be taken by a Class A Certificateholder under the Agreement only at the
direction of one or more Participants to whose DTC accounts the Class A
Certificates are credited. DTC has advised the Representative and the Trustee
that DTC will take such action with respect to any Percentage Interests of the
Class A Certificates. DTC may take actions, at the direction of the related
Participants, with respect to some Class A Certificates which conflict with
actions taken with respect to other Class A Certificates.
[THE CERTIFICATE GUARANTY INSURANCE POLICIES AND CERTIFICATE
GUARANTY INSURER
The following information has been furnished by Certificate Guaranty Insurer for
use herein.
The Certificate Guaranty Insurance Policies unconditionally and irrevocably
guarantee to any Owner (as described below) that an amount equal to each full
and complete Insured Payment will be received by the Trustee, on behalf of the
Owners, for distribution by the Trustee to each Owner of each Owner's
proportionate share of the Insured Payment. Certificate Guaranty Insurer 's
obligations under the Certificate Guaranty Insurance Policies with respect to a
particular Insured Payment shall be discharged to the extent funds equal to the
applicable Insured Payment are received by the Trustee, whether or not such
funds are properly applied by the Trustee. Insured Payments shall be made only
at the time set forth in the Certificate Guaranty Insurance Policies and no
accelerated Insured Payments shall be made regardless of any acceleration of the
Class A Certificates, unless such acceleration is at the sole option of
Certificate Guaranty Insurer. See "The Agreement--Termination; Purchase of
Loans" herein.
Notwithstanding the foregoing paragraph, the Certificate Guaranty Insurance
Policies do not cover shortfalls, if any, attributable to the liability of the
Trust or the Trustee for withholding taxes, if any (including interest and
penalties in respect of any such liability). Further, the Certificate Guaranty
Insurance Policies do not guaranty payment of any Certificateholders' LIBOR
Interest Carryover.
The Certificate Guaranty Insurer will pay any Insured Payment that is a
Preference Amount on the Business Day (as described below) following receipt on
a Business Day by the Fiscal Agent (as defined below) of (i) a certified copy of
such order, (ii) an opinion of counsel satisfactory to the Certificate Guaranty
Insurer that such order is final and not subject to appeal, (iii) an assignment
in such form as is reasonably required by the Certificate Guaranty Insurer ,
irrevocably assigning to the Certificate Guaranty Insurer all rights and claims
of the Owner relating to or arising under the applicable Class of Class A
Certificates against the debtor which made such preference payment or otherwise
with respect to such preference payment and (iv) appropriate instruments to
effect the appointment of the Certificate Guaranty Insurer as agent for such
Owner in any legal proceeding related to such preference payment, such
instruments being in a form satisfactory to the Certificate Guaranty Insurer ,
provided that if such documents are received after 12:00 noon New York City time
on such Business Day, they will be deemed to be received on the following
Business Day. Such payments shall be disbursed to the receiver or trustee in
bankruptcy named in the final order of the court exercising jurisdiction on
behalf of the Owner and not to any Owner directly unless such Owner has returned
principal or interest paid on the applicable Class of Class A Certificate to
such receiver or trustee in bankruptcy, in which case such payment shall be
disbursed to such Owner.
The Certificate Guaranty Insurer will pay any other amount payable under the
Certificate Guaranty Insurance Policies no later than 12:00 noon New York City
time on the later of the Remittance Date on which the Distribution Amount is due
or the Business Day following receipt in New York, New York on a Business Day by
State Street Bank and Trust Company, N.A., as Fiscal Agent for the Certificate
Guaranty Insurer or any successor fiscal agent appointed by the Certificate
Guaranty Insurer (the "Fiscal Agent") of a Notice (as described below); provided
that if such Notice is received after 12:00 noon New York City time on such
Business Day, it will be deemed to be received on the following Business Day. If
any such Notice received by the Fiscal Agent is not in proper form or is
otherwise insufficient for the purpose of making claim under the Certificate
Guaranty Insurance Policies, such Notice shall be deemed not to have been
received by the Fiscal Agent for purposes of this paragraph, and the Certificate
Guaranty Insurer or the Fiscal Agent, as the case may be, shall promptly so
advise the Trustee and the Trustee may submit an amended Notice.
Insured Payments due under the Certificate Guaranty Insurance Policies unless
otherwise stated in the Certificate Guaranty Insurance Policies will be
disbursed by the Fiscal Agent to the Trustee on behalf of the Owners by wire
transfer of immediately available funds in the amount of the Insured Payment
less, in respect of Insured Payments related to Preference Amounts, any amount
held by the Trustee for the payment of such Insured Payment and legally
available therefor.
The Fiscal Agent is the agent of the Certificate Guaranty Insurer only and the
Fiscal Agent shall in no event be liable to Owners for any acts of the Fiscal
Agent or any failure of the Certificate Guaranty Insurer to deposit, or cause to
be deposited, sufficient funds to make payments due under the Certificate
Guaranty Insurance Policies.
As used in the Certificate Guaranty Insurance Policies, the following terms
shall have the following meanings:
"Business Day" means any day other than a Saturday, a Sunday or a day on which
banking institutions in New York City or in the city in which the corporate
trust office of the Trustee under the Agreement is located are authorized or
obligated by law or executive order to close.
"Deficiency Amount" means with respect to any Remittance Date, (i) the excess,
if any, of (a) the Pool I, Pool II, Pool III or Pool IV Current Interest
Requirement, as the case may be, over (b) the sum of the Pool I, Pool II, Pool
III or Pool IV Available Remittance Amount, as the case may be (minus amounts
withdrawn to pay required premiums to the Certificate Guaranty Insurer ), and
the Monthly Excess Spread and the Subordination Reduction Amount applicable to
such Pool, plus (ii) the Pool I, Pool II, Pool III or Pool IV Subordination
Deficit, if any, with respect to such Remittance Date.
"Insured Payment" means (i) as of any Remittance Date, any Deficiency Amount and
(ii) any Preference Amount.
"Notice" means the telephonic or telegraphic notice, promptly confirmed in
writing by telecopy substantially in the form of Exhibit A attached to the
related Certificate Guaranty Insurance Policy, the original of which is
subsequently delivered by registered or certified mail, from the Trustee
specifying the Insured Payment which shall be due and owing on the applicable
Remittance Date.
"Owner" means each Class A Certificateholder (other than the Trust) who, on the
applicable Remittance Date, is entitled under the terms of the applicable Class
of Class A Certificates to payment thereunder.
"Preference Amount" means any amount previously distributed to an Owner on the
Certificates that is recoverable and sought to be recovered as a voidable
preference by a trustee in bankruptcy pursuant to the United States Bankruptcy
Code (11 U.S.C.), as amended from time to time, in accordance with a final
nonappealable order of a court having competent jurisdiction.
Capitalized terms used in the Certificate Guaranty Insurance Policies and not
otherwise defined therein shall have the respective meanings set forth in the
Agreement as of the date of execution of the Certificate Guaranty Insurance
Policies, without giving effect to any subsequent amendment or modification to
the Agreement.
The Certificate Guaranty Insurance Policies were issued under and pursuant to,
and shall be construed under, the laws of the State of New York, without giving
effect to the conflict of laws principles thereof.
The insurance provided by the Certificate Guaranty Insurance Policies are not
covered by the Property/Casualty Insurance Security Fund specified in Article 76
of the New York Insurance Law.
The Certificate Guaranty Insurance Policies are not cancelable for any reason.
The premiums on the Certificate Guaranty Insurance Policies are not refundable
for any reason including payment, or provision being made for payment, prior to
maturity of the Class A Certificates.
The table below presents selected financial information of the Certificate
Guaranty Insurer determined in accordance with statutory accounting practices
prescribed or permitted by insurance regulatory authorities ("SAP") and
generally accepted accounting principles ("GAAP"):
<TABLE>
<CAPTION>
SAP GAAP
DECEMBER 31 DECEMBER 31 DECEMBER 31 DECEMBER 31
199_ 199_ 199_ 199_
(AUDITED) (AUDITED) (AUDITED) (AUDITED)
(MILLIONS) (MILLIONS)
<S> <C> <C> <C> <C> <C>
Admitted Assets............... $ $ Assets................... $ $
Liabilities................... Liabilities..............
Capital and Shareholder's
Surplus....................... Equity...................
</TABLE>
The consolidated financial statements of the Certificate Guaranty Insurer , as
of December 31, 199_ and 199_ and for the three years ended December 31, 199_,
prepared in accordance with generally accepted accounting principles, included
in the Annual Report on Form 10-K of the Certificate Guaranty Insurer for the
year ended December 31, 199_ and the consolidated financial statements of the
Certificate Guaranty Insurer and its subsidiaries for the [nine]-months ended
[September 30], 199_ and for the periods ending [September 30], 199_ and
[September 30], 199_ included in the Quarterly Report on Form 10-Q for the
Certificate Guaranty Insurer for the period ending [September 30], 199_, are
hereby incorporated by reference into this Prospectus Supplement and shall be
deemed to be a part hereof. Any statement contained in a document incorporated
by reference herein shall be modified or superseded for purposes of
this Prospectus Supplement to the extent that a statement contained herein or
in any other subsequently filed document which is also incorporated by reference
herein modifies or supersedes such statement. Any statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus Supplement.
All financial statements of the Certificate Guaranty Insurer and its
subsidiaries included in documents filed by the Certificate Guaranty Insurer]
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of
1934, as amended, subsequent to the date of this Prospectus Supplement and prior
to the termination of the offering of the Class A Certificates shall be deemed
to be incorporated by reference into this Prospectus Supplement and to be a part
hereof from the respective dates of filing such documents.
Copies of the financial statements of the Certificate Guaranty Insurer
incorporated by reference herein and copies of the Certificate Guaranty Insurer
's 199_ year-end audited financial statements prepared in accordance with
statutory accounting practices are available, without charge, from the
Certificate Guaranty Insurer. The address of the Certificate Guaranty Insurer is
________________________. The telephone number of the Certificate Guaranty
Insurer is (___) ________.
The Certificate Guaranty Insurer does not accept any responsibility for the
accuracy or completeness of this Prospectus Supplement or the Prospectus or any
information or disclosure contained herein or therein, or omitted herefrom or
therefrom, other than with respect to the accuracy of the information regarding
the Certificate Guaranty Insurance Policies and the Certificate Guaranty Insurer
set forth under the heading "The Certificate Guaranty Insurance Policies and The
Certificate Guaranty Insurer " herein. Additionally, the Certificate Guaranty
Insurer makes no representation regarding the Class A Certificates or the
advisability of investing in the Class A Certificates.
[Moody's] rates the claims paying ability of the Certificate Guaranty Insurer
"Aaa." [S&P] rates the claims paying ability of the Certificate Guaranty Insurer
"AAA." [Fitch Investors Service, L.P.] rates the claims paying ability of the
Certificate Guaranty Insurer "AAA." Each rating of the Certificate Guaranty
Insurer should be evaluated independently. The ratings reflect the respective
rating agency's current assessment of the creditworthiness of the Certificate
Guaranty Insurer and its ability to pay claims on its policies of insurance. Any
further explanation as to the significance of the above ratings may be obtained
only from the applicable rating agency.
The above ratings are not recommendations to buy, sell or hold the Class A
Certificates, and such ratings may be subject to revisions or withdrawal at any
time by the rating agencies. Any downward revision or withdrawal of any of the
above ratings may have an adverse effect on the market price of the Class A
Certificates. The Certificate Guaranty Insurer does not guaranty the market
price of the Class A Certificates nor does it guaranty that the ratings on the
Class A Certificates will not be revised or withdrawn.]
THE AGREEMENT
In addition to the provisions of the Agreement summarized elsewhere in this
Prospectus Supplement, set forth below is a summary of certain other provisions
thereof. Certain capitalized terms used in this section and not otherwise
defined, have the meanings set forth in the Prospectus.
REPRESENTATIONS AND WARRANTIES
In addition to the representations and warranties as to each Loan described
under the caption "The Agreements-- Representations and Warranties" in the
Prospectus, (i) the Representative will represent in the Agreement that each FHA
Loan is an FHA Title I loan, underwritten in accordance with applicable FHA
requirements and submitted to the FHA for insurance; (ii) each Originator will
represent that, assuming sufficient coverage remains available in the Reserve
Amount, each Claim filed by the Claims Administrator with respect to a 90 Day
Delinquent FHA Loan will be honored by the FHA in accordance with the rules and
regulations of the FHA; (iii) substantially all the proceeds of each Pool III
Loan have been or will be used to acquire or to improve or protect an interest
in real property that, at the origination date of such Pool III Loan, was the
only security for such Pool III Loan; and (iv) for each Pool III Loan, after
giving effect to all improvements to be made on the related Mortgaged Property
with the proceeds of such Loan, and based upon representations of the related
Obligor, the value of the related Mortgaged Property will at least be equal to
the amount of such Pool III Loan and the outstanding amount of all other loans
secured by prior liens on such Mortgaged Property.
The Servicer will also covenant that it will: (a) comply with all FHA rules and
regulations and will maintain its status as an approved lender and will at all
times hold a valid contract of insurance (unless such contract is terminated so
as not to affect the obligation of FHA to provide insurance coverage with
respect to the FHA Loans); (b) promptly pay all insurance charges and take all
action necessary to maintain insurance on the FHA Loans; (c) immediately pay,
or, if the Servicer is no longer the Claims Administrator, cause the Claims
Administrator to pay, in full, any FHA Payment into the Principal and Interest
Account; and (d) with certain exceptions, not allow any modifications or
assumptions of the FHA Loans that would vary their terms.
OBLIGATION OF THE CLAIMS ADMINISTRATOR
If any FHA Loan becomes a 90 Day Delinquent FHA Loan, and if sufficient
coverage is available in the Reserve Amount to make an FHA Payment with respect
to such FHA Loan, the Claims Administrator may, in its sole discretion, during
any subsequent Due Period, determine to file a Claim with the FHA with respect
to such 90 Day Delinquent FHA Loan. If the Claims Administrator determines to
file such a Claim, the Claims Administrator will so notify the Co-Trustee and
the Custodian no later than the Determination Date following such determination
and shall request delivery of the related Trustee's Loan File. Upon receipt of
such certification and request, the Custodian shall, no later than the related
Remittance Date, release to the Claims Administrator the related Trustee's Loan
File and the Co-Trustee and the Custodian shall execute and deliver such
instruments necessary to enable the Claims Administrator to file a Claim with
the FHA on behalf of the Co-Trustee. Within 120 days of its receipt of the
related Trustee's Loan File, the Claims Administrator shall, in its sole
discretion, either file a Claim with the FHA for an FHA Payment with respect to
such 90 Day Delinquent FHA Loan or, if the Claims Administrator determines not
to file such a Claim, return to the Co-Trustee the related Trustee's Loan File.
With respect to any 90 Day Delinquent FHA Loan transferred to the Claims
Administrator as described above, the Claims Administrator shall deposit (or, if
the Claims Administrator is not also the Servicer, the Claims Administrator
shall instruct the Servicer to deposit) in the Principal and Interest Account
within 24 hours of receipt or determination thereof the following amounts (such
amounts to be net of certain amounts that would be reimbursable to the Servicer
under the Agreement with respect to amounts in the Principal and Interest
Account): (i) any FHA Payments; (ii) the amount, if any, by which the FHA
Payment was reduced in accordance with FHA Regulations due to the Claims
Administrator enforcing a lien on the FHA Property prior to the lien of the
related 90 Day Delinquent FHA Loan; and (iii) any principal and interest
payments received with respect to a 90 Day Delinquent FHA Loan after the Due
Period in which the FHA Loan is transferred to the Claims Administrator and
before either the related FHA Payment is paid or the related Trustee's Loan File
is returned to the Co-Trustee, as the case may be (the amounts referred to in
(ii) and (iii) above are referenced to herein as "Related Payments").
If an FHA Loan becomes a 90 Day Delinquent FHA Loan when there is insufficient
coverage in the Reserve Amount, or if the Claims Administrator determines not to
file a Claim with the FHA with respect to such 90 Day Delinquent FHA Loan, the
Co-Trustee will not transfer such FHA Loan to the Claims Administrator, no Claim
will be made to the FHA and the Servicer may take other action, including the
commencement of foreclosure proceedings, on the related Mortgaged Property.
FHA PREMIUM ACCOUNT
The FHA Premium Account will be established with the Trustee and will be
available to reimburse the Claims Administrator or the Certificate Guaranty
Insurer for the payment to the FHA of the FHA Insurance Premium on each FHA
Loan. The FHA Insurance Premium is an annual premium equal to 0.5% of the
original principal balance of the FHA Loan. If the related Mortgagor pays the
FHA Insurance Premium in addition to the Monthly Payment, any payment of the FHA
Insurance Premium received during a Due Period will be deposited in the FHA
Premium Account on the related Remittance Date. In certain states, the Servicer
is prohibited from directly collecting the FHA Insurance Premium from the
related Mortgagor. With respect to FHA Loans secured by Mortgaged Properties
located in such states, the Servicer will cause to be deposited in the FHA
Premium Account a specified percentage of each scheduled interest payment. Since
a Mortgagor pays interest on the declining principal balance of the related FHA
Loan and the FHA Insurance Premium is based upon the original principal balance
of the FHA Loan, the amount of interest allocated to the FHA Premium Account may
be more or less than the amount of the related FHA Insurance Premium. The
Servicer has agreed to satisfy any resulting shortfall from its own funds.
PRE-FUNDING ACCOUNT
On the Closing Date, an aggregate cash amount (the "Pre-Funded Amount") will be
deposited into the Pre-Funding Account in an amount not to exceed
$______________, in the case of Pool I, $___________, in the case of Pool II,
$_____________, in the case of Pool III and $____________, in the case of Pool
IV. Amounts allocated to Pool I, Pool II, Pool III and Pool IV, as the case may
be, may be used only (i) to acquire Subsequent Home Equity Loans for Pool I and
Pool II, Subsequent Home Improvement Loans for Pool III and Subsequent
Multifamily Loans for Pool IV, respectively, and (ii) to make accelerated
payments of principal on the Certificates of the related Pool. During the period
(the "Funding Period") from the Closing Date until the earliest of (i) the date
on which the amount on deposit in the Pre-Funding Account is less than $200,000,
(ii) the date on which an Event of Default occurs under the Agreement
or (iii) at the close of business on ________, 1997, amounts will, from time to
time, be withdrawn from the Pre- Funding Account to purchase Subsequent Loans in
accordance with the Agreement. Any Pre-Funded Amount remaining at the end of the
Funding Period will be distributed as a principal prepayment on the next
Remittance Date to the Class A Certificates of the related Pool. However, any
Pre-Funded Amount remaining at the close of business on _______, 1997 will be
distributed as a principal prepayment on the Special Remittance Date to the
Class A Certificates of the related Pool. The Pre-Funding Account moneys funded
from the sale of Pool I, Pool II, Pool III or Pool IV Certificates,
respectively, may not be used to acquire Loans relating to the other Pool.
All funds in the Pre-Funding Account are required to be held (i) uninvested, up
to the limits insured by the Federal Deposit Insurance Corporation or (ii)
invested in instruments designated as "Permitted Instruments" in the Agreement.
Any investment earnings on funds in the Pre-Funding Account will be applied to
payment of interest on the Certificates.
CAPITALIZED INTEREST ACCOUNT
On the Closing Date, the Representative also will make a cash deposit in an
account (the "Capitalized Interest Account") in the name of the Trustee on
behalf of the Trust. The amount, if any, deposited therein will be used by the
Trustee on the Remittance Dates occurring in _____, ______ and ______, 1997 to
fund the excess, if any, of (i) the amount of interest accrued for each such
Remittance Date at the weighted average Pass-Through Rate of the Class A-1,
Class A-2, Class A-3, Class A-4, Class A-5 and Class A-6 Certificates with
respect to the Pool I Certificates, the Class A-7 Pass-Through Rate with respect
to the Pool II Certificates, the Class A-8 Pass-Through Rate with respect to the
Pool III Certificates and the Class A-9 Pass-Through Rate with respect to the
Pool IV Certificates on the portion of the Class A Certificates having principal
balances exceeding the principal balances of the Pool I, Pool II, Pool III or
Pool IV Loans, as the case may be, over (ii) the amount of any earnings on funds
in the Pre-Funding Account that are available to pay interest on the Class A
Certificates on each such Remittance Date. Additionally, if a principal
prepayment is made on the Special Remittance Date to the Class A Certificates,
such Class A Certificates also will receive on such date, from the Capitalized
Interest Account, an amount equal to __ days' interest (or, in the case of the
Class A-7 Certificates, __ days' interest) at the applicable Pass-Through Rates
on the amount of such principal prepayment. Any amounts remaining in the
Capitalized Interest Account on the Special Remittance Date and not used for
such purposes are required to be paid directly to the holders of the Class R
Certificates on such Special Remittance Date.
All funds in the Capitalized Interest Account are required to be held (i)
uninvested, up to the limits insured by the Federal Deposit Insurance
Corporation or (ii) invested in Permitted Instruments. Any investment earnings
on funds in the Capitalized Interest Account will be applied to payment of
interest on the Certificates.
PAYMENTS ON THE LOANS
The Agreement requires the Servicer to establish and maintain one or more
principal and interest accounts (each, a "Principal and Interest Account") at
one or more institutions designated as a "Designated Depository Institution" in
the Agreement.
All funds in the Principal and Interest Accounts are required to be held (i)
uninvested, up to the limits insured by the Federal Deposit Insurance
Corporation or (ii) invested in Permitted Instruments. Any investment earnings
on funds held in the Principal and Interest Accounts are for the account of the
Servicer.
The Servicer is required to deposit in the related Principal and Interest
Account (within 24 hours of receipt) all payments received after the Cut-Off
Date on account of principal and interest on the related Loans (but net of the
Servicing Fee and the Contingency Fee with respect to each Loan and other
servicing compensation payable to the Servicer as permitted by the Agreement).
Not later than the day of each month which is the later of (i) the third
Business Day prior to the 15th day of such month and (ii) the seventh Business
Day of such month (each such day a "Determination Date"), the Servicer is
required to wire transfer to the Trustee the Pool I, Pool II, Pool III and Pool
IV Available Remittance Amounts for deposit in the segregated trust accounts
maintained with the Trustee for such purpose (each a "Certificate Account").
The "Pool I Available Remittance Amount," the "Pool II Available Remittance
Amount," the "Pool III Available Remittance Amount" and the "Pool IV Available
Remittance Amount" are defined in the Agreement to include, with respect to any
Remittance Date, without duplication:
(i) the sum of all amounts received by the Servicer or any Subservicer
on the Pool I, Pool II, Pool III or Pool IV Loans, as the case may be
(including amounts paid by the Servicer and the Representative and
excluding (a) any Excess Spread and Subordination Reduction Amounts
included in such amounts, (b) amounts paid as reimbursement to the
Servicer of advances and (c) amounts recovered as voidable
preferences), during the immediately preceding calendar month (the "Due
Period"); provided, however, that certain amounts representing interest
collected on the Pool I Loans may be allocated to Pool II as described
below, plus
(ii) the amount of any Monthly Advances and Compensating Interest
payments with respect to the Pool I, Pool II, Pool III or Pool IV
Loans, as the case may be, remitted by the Servicer for such Remittance
Date, plus
(iii) amounts to be transferred to the Certificate Account from the
Pre-Funding Account and the Capitalized Interest Account with respect
to the Remittance Dates in ________, _________ and ________, 1997.
The terms Pool I, Pool II, Pool III and Pool IV Available Remittance Amounts do
not include Insured Payments.
For each Remittance Date through and including the Remittance Date occurring in
_____ 199_, if the amount of interest due on or with respect to the Pool II
Loans and available to pay interest on the Class A-7 and Certificates (and, for
the Remittance Dates in _____, __________ and ________ 1997, amounts to be
transferred to the Certificate Account from the Capitalized Interest Account
with respect to Pool II) is less than the amount needed to pay interest on the
Class A-7 Certificates at a rate equal to LIBOR plus the applicable margin, a
portion of the interest due on the Pool I Loans (and, for the Remittance Dates
in _______, _________ and ________, 1997, amounts in the Capitalized Interest
Account allocated to Pool I) equal to the lesser of such excess or ______ of
____% of the principal balance of the Pool I Loans immediately prior to the
related Due Period (and, for the Remittance Dates in ______, ________ and ______
1997, ______ of ____% of the amount in the Pre-Funding Account immediately prior
to such Remittance Date allocated to Pool I) will be applied to the payment of
interest on the Class A-7 Certificates (or such lesser amount as may be
available after paying interest on, and certain other costs relating to, the
Pool I Certificates).
MONTHLY ADVANCES AND COMPENSATING INTEREST
Not later than the close of business on each Determination Date, the
Servicer is required to remit to the Trustee for deposit in the applicable
Certificate Account an amount equal to the amount, if any, by which (a) the sum
of (x) 30 days' interest (or, with respect to the Class A-7 Certificates, the
number of days from the last Remittance Date up to but not including the
upcoming Remittance Date) at (i) the weighted average Class A-1, Class A-2,
Class A-3, Class A-4, Class A-5 and Class A-6 Adjusted Mortgage Loan Remittance
Rates on the outstanding Principal Balance of the Pool I Certificates, (ii) the
Class A-7 Adjusted Mortgage Loan Remittance Rate on the outstanding Principal
Balance of the Pool II Certificates, (iii) the Class A-8 Adjusted Mortgage Loan
Remittance Rates on the outstanding Principal Balance of the Pool III
Certificates, and (iv) the Class A-9 Adjusted Mortgage Loan Remittance Rates on
the outstanding Principal Balance of the Pool IV Certificates, in each case,
immediately prior to the related Remittance Date and (y) the Monthly Excess
Spread, if any, for the related Remittance Date relating to the Pool I, Pool II,
Pool III and Pool IV Loans, respectively, exceeds (b) the amount received by the
Servicer in respect of interest on the Pool I, Pool II, Pool III and Pool IV
Loans, respectively, as of the related Record Date (and, with respect to the
Remittance Dates in _____, ____ and ______, 1997, the sum of (i) all funds to be
transferred to the applicable Certificate Account from the Capitalized Interest
Account for such Remittance Date and (ii) certain investment earnings on amounts
in the Pre- Funding Account for the applicable Remittance Date). Such excess is
defined as the "Monthly Advance." Monthly Advances will not cover any
Certificateholders' LIBOR Interest Carryover allocated to the Class A-7
Certificates. The Servicer is not required to make any Monthly Advances which it
determines, in good faith, would be nonrecoverable from amounts in respect of
the Loans.
Not later than the close of business on each Determination Date, with respect
to each Loan for which a Principal Prepayment in full or Curtailment was
received during the related Due Period, the Servicer is required to remit to the
Trustee for deposit in the applicable Certificate Account from amounts otherwise
payable to it as servicing compensation, an amount equal to the excess of (a) 30
days' interest (or, with respect to the Class A-7 Certificates, the number of
days from the last Remittance Date up to but not including the upcoming
Remittance Date) on the principal balance of each such Loan as of the beginning
of the related Due Period at the weighted average Class A-1, Class A-2, Class
A-3, Class A-4, Class A-5 and Class A-6 Adjusted Mortgage Loan Remittance Rates
in the case of the Pool I Loans, the Class A-7 Adjusted Mortgage Loan Remittance
Rate in the case of the Pool II Loans, the Class A-8 Adjusted Mortgage Loan
Remittance Rate in the case of the Pool III Loans or the Class A-9 Adjusted
Mortgage Loan Remittance Rates in the case of the Pool IV Loans, as the case may
be, applicable to the Remittance Date on which such amount will be distributed,
over (b) the amount of interest actually received on the related Loan for such
Due Period (such difference, "Compensating Interest").
FLOW OF FUNDS
The Agreement requires the Servicer to withdraw on each Determination Date that
portion of the Pool I, Pool II, Pool III and Pool IV Available Remittance
Amounts in the Principal and Interest Account and to remit such amounts together
with any Excess Spread, Subordination Reduction Amounts, Monthly Advances and
Compensating Interest for the related Remittance Date to the Trustee for deposit
in the applicable Certificate Account. Upon receipt on each Determination Date
of such amounts, the Trustee is required to deposit such amounts into the
applicable Certificate Account.
The Agreement provides that on each Remittance Date the Trustee is required to
withdraw from the Certificate Accounts the sum of (i) the Pool I, Pool II, Pool
III and Pool IV Available Remittance Amounts (minus the amounts withdrawn from
the Certificate Accounts to deposit amounts related to required premiums in the
Insurance Account and the FHA Premium Account), (ii) any amounts of Total
Monthly Excess Cashflow to be applied to the Certificates, (iii) amounts
transferred from the Spread Account, if any, to cover Insured Payments and
Insured Payments, if any, made by Certificate Guaranty Insurance with respect to
Pool I, Pool II, Pool III or Pool IV, as the case may be (such sums, the "Pool I
Available Amount," the "Pool II Available Amount," the "Pool III Available
Amount" and the "Pool IV Available Amount," respectively), and (iv) certain
excess Monthly Excess Spread for Pool I, Pool II, Pool III and Pool IV, as the
case may be, and make distributions thereof in the following order of priority:
(i) (a) to the Pool I Certificateholders, the lesser of the Pool I
Available Amount and the Pool I Distribution Amount, (b) to the Pool II
Certificateholders, the lesser of the Pool II Available Amount and the
Pool II Distribution Amount, (c) to the Pool III Certificateholders,
the lesser of the Pool III Available Amount and the Pool III
Distribution Amount and (d) to the Pool IV Certificateholders, the
lesser of the Pool IV Available Amount and the Pool IV Distribution
Amount;
(ii) then to an expense account, an amount equal to
one-twelfth of the annual expenses of the Trust;
(iii) then to the Servicer and/or The Money Store Inc., an amount equal
to certain unreimbursed amounts with respect to the applicable Pool;
(iv) then to the Pool IV Certificates, any
Certificateholders' LIBOR Interest Carryover;
(v) then to the Class R Certificateholders, amounts then remaining with
respect to the applicable Pool.
On each Remittance Date, the amount to be distributed to the Pool I
Certificates pursuant to clause (i)(a) above will be allocated in the following
order of priority:
(A) first, concurrently to the Class A-1, Class A-2, Class A-3, Class A-4,
Class A-5 and Class A-6 Certificateholders, the Class A-1, Class A-2, Class A-3,
Class A-4, Class A-5 and Class A-6 Current Interest Requirements for such
Remittance Date, pro rata in accordance with such amounts;
(B) second, to the Class A-1 Certificateholders, the excess, if any, of the
amount to be distributed to the Pool I Certificates on such Remittance Date over
the amount distributed pursuant to (A) above, until the Class A-1 Principal
Balance is reduced to zero and such Class A-1 Certificateholders have received
an amount equal to the amount described in clause (iv) of the definition of Pool
I Distribution Amount that is recovered from such Certificateholders;
(C) third, to the Class A-2 Certificateholders, the excess, if any, of the
amount to be distributed to the Pool I Certificates on such Remittance Date over
the amount distributed pursuant to (A) and (B) above, until the Class A-2
Principal Balance is reduced to zero and such Class A-2 Certificateholders have
received an amount equal to the amount described in clause (iv) of the
definition of Pool I Distribution Amount that is recovered from such
Certificateholders;
(D) fourth, to the Class A-3 Certificateholders, the excess, if any, of the
amount to be distributed to the Pool I Certificates on such Remittance Date over
the amount distributed pursuant to (A), (B) and (C) above, until the Class A- 3
Principal Balance is reduced to zero and such Class A-3 Certificateholders have
received an amount equal to the amount described in clause (iv) of the
definition of Pool I Distribution Amount that is recovered from such
Certificateholders;
(E) fifth, to the Class A-4 Certificateholders, the excess, if any, of the
amount to be distributed to the Pool I Certificates on such Remittance Date over
the amount distributed pursuant to (A), (B), (C) and (D) above, until the Class
A-4 Principal Balance is reduced to zero and such Class A-4 Certificateholders
have received an amount equal to the amount described in clause (iv) of the
definition of Pool I Distribution Amount that is recovered from such
Certificateholders;
(F) sixth, to the Class A-5 Certificateholders, the excess, if any, of the
amount to be distributed to the Pool I Certificates on such Remittance Date over
the amount distributed pursuant to (A), (B), (C), (D) and (E) above, until the
Class A-5 Principal Balance is reduced to zero and such Class A-5
Certificateholders have received an amount equal to the amount described in
clause (iv) of the definition of Pool I Distribution Amount that is recovered
from such Certificateholders; and
(G) seventh, to the Class A-6 Certificateholders, the excess, if any, of the
amount to be distributed to the Pool I Certificates on such Remittance Date over
the amount distributed pursuant to (A), (B), (C), (D), (E) and (F) above, until
the Class A-6 Principal Balance is reduced to zero and such Class A-6
Certificateholders have received an amount equal to the amount described in
clause (iv) of the definition of Pool I Distribution Amount that is recovered
from such Certificateholders.
On each Remittance Date, the amount to be distributed to the Pool II
Certificates pursuant to clause (i)(b) above will be allocated in the following
order of priority:
(A) first, to the Class A-7 Certificateholders, the Class A-7 Current Interest
Requirement for such Remittance Date; and
(B) second, to the Class A-7 Certificateholders the excess, if any, of the
amount to be distributed to the Pool II Certificates on such Remittance Date
over the amount distributed pursuant to (A) above, until the Class A-7 Principal
Balance is reduced to zero and such Class A-7 Certificateholders have received
an amount equal to the amount described in clause (iv) of the definition of Pool
II Distribution Amount that is recovered from such Certificateholders.
On each Remittance Date, the amount to be distributed to the Pool III
Certificates pursuant to clause (i)(c) above will be allocated in the following
order of priority:
(A) first, to the Class A-8 Certificateholders, the Class A-8 Current Interest
Requirement for such Remittance Date; and
(B) second, to the Class A-8 Certificateholders, the excess, if any, of
the amount to be distributed to the Pool III Certificates on such Remittance
Date over the amount distributed pursuant to (A) above, until the Class A-8
Principal Balance is reduced to zero and such Class A-8 Certificateholders have
received an amount equal to the amount described in clause (iv) of the
definition of Pool III Distribution Amount that is recovered from such
Certificateholders.
On each Remittance Date, the amount to be distributed to the Pool IV
Certificates pursuant to clause (i)(d) above will be allocated in the following
order of priority:
(A) first, to the Class A-9 Certificateholders, the Class A-9 Current Interest
Requirements for such Remittance Date; and
(B) second, to the Class A-9 Certificateholders, the excess, if any, of the
amount to be distributed to the Pool IV Certificates on such Remittance Date
over the amount distributed pursuant to (A) above, until the Class A-9 Principal
Balance is reduced to zero and such Class A-9 Certificateholders have received
an amount equal to the amount described in clause (iv) of the definition of Pool
IV Distribution Amount that is recovered from such Certificateholders.
Additionally, through and including the Remittance Date occurring in _______,
199_, the holders of the Class A-7-I Certificates will be entitled to receive
Supplemental Interest Payments.
The Trustee will have the right, on behalf of Class A Certificateholders, to
sue the Certificate Guaranty Insurer in the event any required Insured Payment
is not made in accordance with the terms of the applicable Certificate Guaranty
Insurance Policy.
CALCULATION OF LIBOR
For the first Remittance Date, the Class A-7 Pass-Through Rate will equal
_____% per annum. Thereafter, on the second business day preceding each
Remittance Date (each such date, an "Interest Determination Date"), the Trustee
will determine the London Interbank Offered Rate for one-month U.S. dollar
deposits ("LIBOR") on the basis of the offered rates of the Reference Banks for
one-month U.S. dollar deposits, as such rates appear on page 3750 of the Dow
Jones Telerate Service ("Telerate Page 3750") (or such other page as may replace
that page on that service for the purpose of displaying comparable rates or
prices), as of 11:00 a.m. (London time) on such Interest Determination Date. The
rate of LIBOR so determined on an Interest Determination Date will be the rate
used in determining the Class A-7 Pass-Through Rates for the Remittance Date in
the following month.
As used in this section, "business day" means a day on which banks are open for
dealing in foreign currency and exchange in London and New York City; and
"Reference Banks" means leading banks selected by the Trustee and engaged in
transactions in Eurodollar deposits in the international Eurocurrency market (i)
with an established place of business in London, (ii) whose quotations appear on
Telerate Page 3750 on the Interest Determination Date in question, (iii) which
have been designated as such by the Trustee and (iv) not controlling, controlled
by, or under common control with, the Representative or the Originators.
If such LIBOR does not appear on Telerate Page 3750, LIBOR for that day will be
determined on the basis of the rates for one-month U.S. dollar deposits, in a
principal amount of not less than U.S. $1,000,000, which are offered at
approximately 11:00 a.m., London time, on that day to prime banks in the London
interbank market by the Reference Banks. The Trustee will request the principal
London office of each of the Reference Banks to provide a quotation of its rate.
If at least two such quotations are provided, the rate for that day will be the
arithmetic mean of the quotations. If fewer than two quotations are provided,
the rate for that day will be the arithmetic mean of the rates quoted by major
banks in New York City, selected by the Trustee, at approximately 11:00 a.m.,
New York City time, on that day for loans in United States dollars to leading
European banks for one-month U.S. dollar deposits, in a principal amount of not
less than U.S. $1,000,000; provided that if the banks selected as aforesaid are
not quoting as mentioned in this sentence, LIBOR in effect with respect to such
Remittance Date will be LIBOR in effect for the previous Remittance Date.
The establishment of LIBOR on each Interest Determination Date by the Trustee
and the Trustee's calculation of the rate of interest applicable to the Class
A-7 Certificates for the related Remittance Date shall (in the absence of
manifest error) be final and binding. Each such rate of interest may be obtained
by telephoning the Trustee at (__) ________.
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
The Servicer is entitled to a servicing fee of ________% per annum of the
principal balance of each Loan (the "Servicing Fee") and a contingency fee of
_______% per annum of the principal balance of each Loan (the "Contingency
Fee"). The Contingency Fee is meant to provide additional servicing compensation
to a successor servicer if The Money Store Inc. is replaced as Servicer under
the Agreement. However, as long as The Money Store Inc. acts as Servicer, it is
entitled to receive the Contingency Fee, although such amount is not deemed
servicing compensation. The Servicing Fee and Contingency Fee are each
calculated and payable monthly from the interest portion of scheduled monthly
payments, liquidation proceeds and certain other collected proceeds. In
addition, the Servicer is entitled under the Agreement to retain additional
servicing compensation in the form of assumption and other administrative fees,
prepayment penalties and premiums, late payment charges, interest paid on funds
in the Principal and Interest Accounts, interest paid on earnings realized on
Permitted Instruments, and certain other excess amounts.
TERMINATION; PURCHASE OF HOME EQUITY LOANS
The Trust will terminate upon distribution to the Certificateholders of amounts
due them following the earlier to occur of (i) the final payment or other
liquidation of the last Loan remaining in the Trust or the disposition of all
REO Property, (ii) the optional purchase of the assets of the Trust by the
Servicer or the Certificate Guaranty Insurer , as described below or (iii) the
occurrence of a "qualified liquidation" of the Trust, as permitted by the REMIC
provisions of the Code as described below; provided, however, that in no event
will the Trust terminate later than twenty-one years after the death of the last
survivor of the person named in the Agreement.
As set forth under "The Certificate Guaranty Insurance Policies and The
Certificate Guaranty Insurer" no accelerated Insured Payments will be made
regardless of any acceleration of the Class A Certificates, unless such
acceleration is at the sole option of the Certificate Guaranty Insurer. This
will not affect the Class A Certificateholders since, as described below, as a
condition to any optional termination of the Trust the Certificateholders will
receive an amount equal to the outstanding Principal Balance of the related
Class, plus accrued interest.
Subject to provisions in the Agreement concerning adopting a plan of complete
liquidation, on any date on which the aggregate principal balances of the Loans
are less than 10% of the sum of (i) the Original Pool Principal Balance and (ii)
the original Pre-Funded Amount, if any, the Servicer may, at its option, and in
the absence of the exercise thereof by the Servicer, the Certificate Guaranty
Insurer may, at its option, purchase, on the next succeeding Remittance Date,
all of the Loans and any related REO Properties at a price equal to the
Termination Price relating to the Trust.
On any Remittance Date on or after the Cross-Over Date on which Loans with
aggregate principal balances as of the Cut-Off Date that equal or exceed 25% of
the sum of (i) the Original Pool Principal Balance and (ii) the original Pre-
Funded Amount, if any, have become Liquidated Loans, the Certificate Guaranty
Insurer may determine to purchase and may cause the purchase from the Trust of
all Loans and REO Properties in the Pools at a price equal to the sum of the
Termination Price for each Pool and the outstanding and unpaid fees and expenses
of the Trustee and the Servicer.
Following a final determination by the Internal Revenue Service (the "IRS") or
by a court of competent jurisdiction, in either case from which no appeal is
taken within the permitted time for such appeal, or if any appeal is taken,
following a final determination of such appeal from which no further appeal can
be taken, to the effect that the REMIC does not and will no longer qualify as a
REMIC pursuant to Section 860D of the Code (the "Final Determination"), at any
time on or after the date which is 30 calendar days following such Final
Determination (i) the Holders of greater than 50 percent in Percentage Interest
in each Class of Class A Certificates (the "Applicable Majority
Certificateholders") may direct the Trustee on behalf of the Trust to adopt a
"plan of complete liquidation" (within the meaning of Section 860F(a)(4)(B)(i)
of the Code) with respect to such REMIC and (ii) the Certificate Guaranty
Insurer may notify the Trustee of Certificate Guaranty Insurer's determination
to purchase from the Trust all Loans and all property theretofore acquired by
foreclosure, deed in lieu of foreclosure, or otherwise in respect of any Loan
then remaining in such REMIC at a price equal to the Termination Price. Upon
receipt of such direction by the Applicable Majority Certificateholders or of
such notice from the Certificate Guaranty Insurer , the Trustee will notify the
holders of the Class R Certificates of such election to liquidate or such
determination to purchase, as the case may be (the "Termination Notice"). The
Holders of a majority of the percentage interest of the Class R Certificates
then outstanding may, within 60 days from the date of receipt of the Termination
Notice (the "Purchase Option Period"), at their option, purchase from the Trust
all the Loans and all property theretofore acquired by foreclosure, deed in lieu
of foreclosure, or otherwise in respect of any Loan then remaining in the REMIC
at a purchase price equal to the Termination Price of the Trust.
If, during a Purchase Option Period, the holders of the Class R Certificates
have not exercised the option described in the immediately preceding paragraph,
then upon the expiration of the Purchase Option Period (i) in the event that the
Applicable Majority Certificateholders have given the Trustee the direction
described in clause (i) above, the Trustee is required to sell the Loans and
such other property in the REMIC and distribute the proceeds of the liquidation
of the REMIC, each in accordance with the plan of complete liquidation, such
that, if so directed, the liquidation of the REMIC and the distribution of the
proceeds of the liquidation occur no later than the close of the 60th day, or
such later day as the Applicable Majority Certificateholders shall permit or
direct in writing, after the expiration of the Purchase Option Period and (ii)
in the event that the Certificate Guaranty Insurer has given the Trustee notice
of the Certificate Guaranty Insurer 's determination to purchase the assets
described in clause (ii) preceding, the Certificate Guaranty Insurer shall so
purchase such assets within 60 days after the expiration of the Purchase Option
Period.
Following a Final Determination, the holders of a majority of the percentage
interest of the Class R Certificates then outstanding may, at their option and
upon delivery to the Trustee and the Certificate Guaranty Insurer of an opinion
of nationally recognized tax counsel selected by the Holders of such Class R
Certificates, which opinion shall be reasonably satisfactory in form and
substance to the Applicable Majority Certificateholders and the Certificate
Guaranty Insurer , that the effect of the Final Determination is to increase
substantially the probability that the gross income of the REMIC will be subject
to federal taxation, purchase from the Trust all Loans and all property
theretofore acquired by foreclosure, deed in lieu of foreclosure, or otherwise
in respect of any Loan then remaining in the REMIC at a purchase price equal to
the Termination Price of the Trust. The foregoing opinion shall be deemed
satisfactory unless the Applicable Majority Certificateholders give the holders
of a majority of percentage interests in the Class R Certificates notice that
such opinion is not satisfactory within thirty days after receipt of such
opinion.
If the Trust were to lose its qualification as a REMIC, it might be taxable as a
grantor trust, a partnership, or an association taxable as a corporation. If the
Trust is treated as a grantor trust or a partnership, such Trust would not be
subject to a separate entity level tax, and it is not expected that the tax
treatment of the investors would be materially different from the tax treatment
if the REMIC election of such Trust had not been revoked. However, if the Trust
were treated as an association (or publicly traded partnership) taxable as a
corporation or taxable mortgage pool it would be subject to federal income taxes
at corporate rates on its net income. Moreover, distributions on the Class A
Certificates would probably not be deductible in computing the Trust's taxable
income, and all or part of the distributions to the holders of such Class A
Certificates would probably be treated as dividend income to the holders. Such
an entity level tax could result in reduced distributions to the Class A
Certificateholders and such Class A Certificateholders could also be liable for
a share of such a tax. Any such corporate level tax would be borne first by the
holders of the Class R Certificates from amounts otherwise distributable to such
holders. Any remaining corporate level tax would be borne by holders of all
Classes of Class A Certificates pro rata in proportion to the outstanding
principal balances of such Classes.
THE TRUSTEE
[Name of Trustee] will be the Trustee under the Agreement. The Agreement will
provide that the Trustee may resign at any time, in which event the
Representative will be obligated to appoint a successor Trustee. The
Representative may also remove the Trustee if the Trustee ceases to be eligible
to continue as such under the Agreement or if the Trustee becomes insolvent. Any
resignation or removal of the Trustee and appointment of a successor Trustee
will not become effective until acceptance of the appointment by the successor
Trustee.
THE CO-TRUSTEE
[Name of Co-Trustee] , a ________ banking association headquartered in
__________, ___________, will be the Co- Trustee with respect to the Home
Improvement Loans.
THE CUSTODIAN
[Name of Custodian], a _________ banking association headquartered in ________,
___________, will be the Custodian with respect to the Home Improvement Loans.
In such capacity, it will retain the files relating to the Home Improvement
Loans.
FEDERAL INCOME TAX CONSIDERATIONS
For federal income tax purposes, an election will be made to treat certain
assets of the Trust as a REMIC. Each Class of Class A Certificates will
constitute "regular interests" in the REMIC and the Class R Certificates will be
designated as the "residual interest" in the REMIC. See "Federal Income Tax
Consequences" in the Prospectus.
Because the Class A Certificates will be considered REMIC regular interests,
they generally will be taxable as debt obligations under the Code, and interest
paid or accrued on such Class A Certificates, including original issue discount
with respect to any such Class A Certificates issued with original issue
discount, will be taxable to Certificateholders in accordance with the accrual
method of accounting. See "Federal Income Tax Consequences--REMIC Regular
Certificates--Current Income on REMIC Regular Certificates."
The prepayment assumption that will be used in determining the rate of accrual
of original issue discount with respect to the Class A Certificates is ________.
See "Maturity, Prepayment and Yield Considerations" herein. However, no
representation is made as to the rate at which prepayments actually will occur.
Potential purchasers of Class A Certificates are strongly urged to consult their
own tax advisors as to the suitability of an investment in the Class A
Certificates.
ERISA CONSIDERATIONS
ERISA imposes certain requirements on employee benefit plans and collective
investment funds and separate accounts in which such plans or arrangements are
invested to which it applies and on those persons who are fiduciaries with
respect to such benefit plans. Certain employee benefit plans, such as
governmental plans (as defined in Section 3(32) of ERISA) and certain church
plans (as defined in Section 3(33) of ERISA), are not subject to ERISA. In
accordance with ERISA's general fiduciary standards, before investing in a Class
A Certificate a benefit plan fiduciary should determine whether such investment
is permitted under the governing benefit plan instruments, is appropriate for
the benefit plan in view of its overall investment policy and the composition
and diversification of its portfolio and should consider the ERISA provisions
regarding the delegation of fiduciary responsibility with respect to plan
assets.
In addition, benefit plans subject to ERISA and individual retirement accounts
or certain types of Keogh plans not subject to ERISA but subject to Section 4975
of the Code (each a "Plan") are prohibited from engaging in a broad range of
transactions involving Plan assets and persons having certain specified
relationships to a Plan ("parties in interest" and "disqualified persons"). Such
transactions are treated as "prohibited transactions" Sections 406 and 407 of
ERISA and excise taxes are imposed upon such persons by Section 4975 of the
Code. The Representative, the Originators, The Certificate Guaranty Insurer, the
Underwriters and the Trustee and certain of their affiliates might be considered
"parties in interest" or "disqualified persons" with respect to a Plan. If so,
the acquisition or holding or transfer of Certificates by or on behalf of such
Plan could be considered to give rise to a "prohibited transaction" within the
meaning of ERISA and the Code unless an exemption is available. Furthermore, if
an investing Plan's assets were deemed to include an interest in the Loans and
any other assets of the Trust and not merely an interest in the related Class A
Certificates, transactions occurring in the operation, management and servicing
of the Trust and its assets, including in the servicing of the Loans might
constitute prohibited transactions unless an administrative exemption applies.
One exemption which may be applicable to these potential prohibited transactions
is noted below.
The Department of Labor ("DOL") has issued a regulation (29 C.F.R. Section
2510.3-101) concerning the definition of what constitutes the assets of a Plan
(the "Plan Asset Regulations"), which provides that, as a general rule, the
underlying assets and properties of corporations, partnerships, trusts and
certain other entities in which a Plan makes an "equity" investment will be
deemed for purposes of ERISA to be assets of the investing Plan unless certain
exceptions apply. Thus, a Plan fiduciary considering an investment in Class A
Certificates should also consider whether such an investment might constitute or
give rise to a prohibited transaction under ERISA or the Code.
DOL has granted to [Name of Underwriter] an administrative exemption (Prohibited
Transaction Exemption _____, ___ Fed. Reg. _____ (____ __, 19___) (the
"Exemption")) from certain of the prohibited transaction rules of ERISA with
respect to the initial purchase, the holding and the subsequent resale in the
secondary market by Plans of pass-through certificates representing a beneficial
undivided ownership interest in the assets of a trust that consist of certain
receivables, loans and other obligations that meet the conditions and
requirements of the Exemption which may be applicable to the Class A
Certificates if [Name of Underwriter] or any of its affiliates is either the
sole underwriter or the manager or co-manager of the underwriting syndicate, or
a selling or placement agent. The conditions which must be satisfied for the
Exemption to apply to the purchase, holding and transfer of the Class A
Certificates are the following:
(i) The acquisition of the Class A Certificates by a Plan is on terms
(including the price for the Class A Certificates) that are at least as
favorable to the Plan as they would be in an arm's length transaction with an
unrelated party.
(ii) The rights and interest evidenced by a Class of Class A
Certificates acquired by the Plan are not subordinated to the rights and
interest evidenced by any other Certificates of the Trust.
(iii) The Class A Certificates acquired by the Plan have received a
rating at the time of such acquisition that is in one of the three highest
generic rating categories from any of Moody's, Duff & Phelps Credit Rating Co.,
S & P or in one of the three highest generic rating categories from any of
Moody's, Duff & Phelps Credit Rating Co., S & P or Fitch Investors Service, L.P.
("Authorized Rating Agencies") and the investment pool consists only of assets
of the type enumerated in the Exemption, and which have been included in other
investment pools; certificates evidencing interest in such other investment
pools have been rated in one of the three highest generic rating categories by
an Authorized Rating Agency for at least one year prior to a Plan's acquisition
of certificates; and certificates evidencing interest in such other investment
pools have been purchased by investors other than Plans for at least one year
prior to a plan's acquisition of the Class A Certificates.
(iv) The sum of all payments made to the Underwriters in connection
with the distribution of the Class A Certificates represents not more than
reasonable compensation for distributing the Class A Certificates. The sum of
all payments made to and retained by the Representative and the Originators
pursuant to the sale of the Loans to the Trust represents not more than the fair
market value of such Loans. The sum of all payments made to and retained by the
Servicer or any other servicer represents not more than reasonable compensation
for such services under the Agreement and reimbursement of the servicer's
reasonable expenses in connection therewith.
(v) The Trustee and the Co-Trustee must not be an affiliate of any
member of the Restricted Group as defined below.
In addition, it is a condition that the Plan investing in the Class A
Certificates is an "accredited investor" as defined in Rule 50l(a)(1) of
Regulation D under the Securities Act. Any Plan purchasing Class A Certificates
will be deemed to have represented, by virtue of such purchase, that it is an
accredited investor.
The Exemption does not apply to Plans sponsored by the Originators, the
Representative, the Certificate Guaranty Insurer, the Underwriters, the Trustee,
the Co-Trustee, the Custodian, the Servicer, any other servicers or any obligor
with respect to Loans included in the Trust constituting more than 5% of the
aggregate unamortized principal balance of the assets in the Trust or any
affiliate of such parties (the "Restricted Group"). No exemption is provided
from the restrictions of ERISA for the acquisition or holding of a Class A
Certificate on behalf of an "Excluded Plan" by any person who is a fiduciary
with respect to the assets of such Excluded Plan. For purposes of the Class A
Certificates, an Excluded Plan is a Plan sponsored by any member of the
Restricted Group. In addition, the Exemption provides relief from certain
self-dealing/conflict of interest prohibited transactions that may occur when a
Plan fiduciary causes a Plan to acquire Class A Certificates and the fiduciary
(or its affiliate) is an obligor on any Loan held in the Trust provided that,
among other requirements, (i) such fiduciary (or its affiliate) is an obligor
with respect to 5% or less of the fair market value of the Loans contained in
the Trust, (ii) the Plan's investment in any Class of Class A Certificates does
not exceed 25% of all of the Certificates of such Class outstanding at the time
of the Plan's acquisition and after the Plan's acquisition of such Class of
Class A Certificates, no more than 25% of the assets over which the fiduciary
has investment authority are invested in securities of a trust containing assets
which are sold or serviced by the same entity, and (iii) in the case of initial
issuance (but not secondary market transactions), at least 50% of each Class of
Class A Certificates, and at least 50% of the aggregate interest in the Trust,
are acquired by persons independent of the Restricted Group.
On July 21, 1997, the DOL finalized and published in the Federal Register an
amendment to the Exemption which extends exemptive relief to certain
mortgage-backed and asset-backed securities transactions using pre- funding
accounts for trusts issuing pass-through certificates. With respect to the
Certificates, the new Exemption provisions allow a portion of the Loans
supporting payments to Certificateholders and having a principal balance equal
to no more than 25% of the total principal amount of the Offered Certificates to
be transferred to the Trust within a 90-day or three-month period following the
Closing Date instead of requiring that all such Loans be either identified or
transferred on or before the Closing Date. The relief is effective
for transactions occurring on or after May 23, 1997, provided that the
following conditions are met:
(1) The ratio of the amount allocated to the Pre-Funding Account
to the total principal amount of the Offered Certificates ("Pre-Funding Limit")
must not exceed (25%).
(2) All Subsequent Loans must meet the same terms and conditions for
eligibility as the original Loans used to create the Trust, which terms and
conditions have been approved by the Rating Agencies.
(3) The transfer of the Subsequent Loans to the Trust during the
Funding Period must not result in the Certificates receiving a lower credit
rating from the Rating Agencies upon termination of the Funding Period than the
rating that was obtained at the time of the initial issuance of the Certificates
by the Trust.
(4) Solely as a result of the use of pre-funding, the weighted
average annual percentage interest rate (the "average interest rate") for all of
the Loans in the Trust at the end of the Funding Period must not be more than
100 basis points lower than the average interest rate for the Loans which were
transferred to the Trust on the Closing Date.
(5) Either: (i) the characteristics of the Subsequent Loans must be
monitored by an insurer or other credit support provider which is independent of
the Originator; or (ii) an independent accountant retained by the Originator
must provide the Originator with a letter (with copies provided to each of the
Rating Agencies, the Underwriters and the Trustee) stating whether or not the
characteristics of the Subsequent Loans conform to the characteristics described
in the Prospectus Supplement and/or Agreement. In preparing such letter, the
independent accountant must use the same type of procedures as were applicable
to the Loans which were transferred as of the Closing Date.
(6) The Funding Period must end no later than three months or 90
days after the Closing Date or earlier, in certain circumstances,
if the amount on deposit in the Pre-Funding Account is reduced below the minimum
level specified in the Agreement or an event of default occurs under the
Agreement.
(7) Amounts transferred to any Pre-Funding Account and/or
Capitalized Interest Account used in connection with the pre-funding
may be invested only in Permitted Instruments which are permitted by the Rating
Agencies and (i) are direct obligations of, or obligations fully guaranteed as
to timely payment of principal and interest by, the United States or any agency
or instrumentality thereof (provided that such obligations are backed by the
full faith and credit of the United States); or (ii) have been rated (or the
obligor has been rated) in one of the three highest generic rating categories by
one of the Rating Agencies ("Permitted Investments").
(8) The Prospectus or Prospectus Supplement must describe: (i) any
Pre-Funding Account and/or Capitalized Interest Account used in connection
with a Pre-Funding Account; (ii) the duration of the Funding Period; (iii) the
percentage and/or dollar amount of the Pre-Funding Limit for the Trust; and (iv)
that the amounts remaining in the Pre-Funding Account at the end of the Funding
Period will be remitted to Certificateholders as repayments of principal.
(9) The Agreement must describe the Permitted Investments for the
Pre-Funding Account and Capitalized Interest Account and, if not disclosed in
the Prospectus Supplement, the terms and conditions for eligibility of the
Subsequent Loans.
The Underwriter believes that all of the conditions for exemptive relief under
the Exemption (including those with respect to pre-funding) will be satisfied
with respect to the Class A Certificates, except for those which are dependent
on facts unknown to the Underwriter or which it cannot control, such as those
relating to the circumstances of the Plan investor or the Plan fiduciary in
making the investment decision. However, before purchasing a Class A Certificate
in reliance on the Exemption or any other exemption, a fiduciary of a Plan
should confirm that all applicable requirements would be satisfied. Any Plan
fiduciary considering the purchase of a Class A Certificate should consult with
its counsel with respect to the potential applicability of ERISA and the Code to
such investment. Moreover, each Plan fiduciary should determine whether, under
the general fiduciary standards of investment prudence and diversification, an
investment in the Class A Certificates is appropriate for the Plan, taking into
account the overall investment policy of the Plan and the composition of the
Plan's investment portfolio. Special caution ought to be exercised before a Plan
purchases a Class A Certificate in such circumstances. See "ERISA
Considerations" in the Prospectus.
LEGAL INVESTMENT CONSIDERATIONS
Although, as a condition to their issuance, each Class of Class A Certificates
will be rated in the highest rating category by each Rating Agency, the Class A
Certificates will not constitute "mortgage related securities" for purposes of
SMMEA. Accordingly, many institutions with legal authority to invest in
comparably rated securities based on first mortgage loans or deeds of trust may
not be legally authorized to invest in the Class A Certificates. No
representation is made herein as to whether the Class A Certificates constitute
legal investments for any entity under any applicable statute, law, rule,
regulation or order. Prospective purchasers are urged to consult with their
counsel concerning the status of the Class A Certificates as legal investments
for such purchasers prior to investing in any Class of Class A Certificates.
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
dated ________, 199___ (the "Underwriting Agreement"), the Representative, on
behalf of the Originators, has agreed to sell and each Underwriter has agreed to
purchase the principal amount of each Class of Class A Certificates set forth
opposite its name below.
[Name of Underwriter]
CLASS OF CERTIFICATE CLASS PRINCIPAL AMOUNT
A-1 $
A-2 $
A-3 $
A-4 $
A-5 $
A-6 $
A-7 $
A-8 $
A-9 $______________
Total $
The Class A Certificates will be offered by the Underwriters to the public.
After the Class A Certificates are released for sale to the public, the offering
price and other selling terms may be varied by the Underwriters. The
Underwriters and any dealers that participate with the Underwriters in the
distribution of the Class A Certificates may be deemed to be underwriters and
any commissions received by them and any profit on the resale of the Class A
Certificates by them may be deemed to be underwriting discounts and commissions
under the Securities Act of 1933, as amended.
[In connection with the offering, the Underwriter and the selling group members
and their respective affiliates may engage in transactions that stabilize,
maintain or otherwise affect the market price of the Class A Certificates. Such
transactions may include stabilization transactions in accordance with Rule 104
of Regulation M, pursuant to which such person may bid for or purchase the Class
A Certificates for the purpose of stabilizing their market price. The
Underwriter may also create a short position for the account of the Underwriter
by selling more the Class A Certificates in connection with the offering than it
is committed to purchase, and in such case may purchase the Class A Certificates
in the open market following completion of the offering to cover all or a
portion of such short position. Any of the transactions described in this
paragraph may result in the maintenance of the price of the Class A Certificates
at a level above that which might otherwise prevail in the open market. None of
the transactions described in this paragraph is required, and, if they are
undertaken, they may discontinue at any time.]
The Representative has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as amended.
Each of the Underwriters may provide investment banking services for the
Representative for which it will receive additional compensation.
EXPERTS
[The consolidated financial statements of the Certificate Guaranty Insurer as
of December 31, 199_ and 199_ and for the years ended December 31, 199_, 199_
and 199_ incorporated by reference into this Prospectus Supplement have been
audited by ______________, independent accountants, as set forth in their report
thereon incorporated by reference herein in reliance upon the authority of such
firm as experts in accounting and auditing.]
LEGAL MATTERS
Certain legal matters relating to the validity of the issuance of the
Certificates will be passed upon for the Representative by Eric R. Elwin, Esq.,
Corporate Counsel of the Representative. Certain legal matters relating to the
validity of the issuance of the Certificates will be passed upon for the
Underwriters by Stroock & Stroock & Lavan, LLP, New York, New York. Certain
legal matters will be passed upon for the Certificate Guaranty Insurer by
______________________. Stroock & Stroock & Lavan LLP has performed legal
services for the Representative and it is expected that it will continue to
perform such services in the future.
RATING OF THE CLASS A CERTIFICATES
It is a condition to the issuance of the Class A Certificates that each Class
be rated "AAA" by [S&P] and "Aaa" by [Moody's] (collectively, the "Rating
Agencies"). Such ratings are the highest long-term ratings that such Rating
Agencies assign to securities. The ratings given to the Class A Certificates
will be based, among other things, upon the ratings assigned to the claims
paying ability of the Certificate Guaranty Insurer. Any reduction in such rating
of the Certificate Guaranty Insurer would most likely result in a reduction in
the ratings given to the Class A Certificates. A security rating is not a
recommendation to buy, sell or hold securities and may be subject to revision or
withdrawal at any time by the assigning Rating Agency. No person is obligated to
maintain the rating on any Class of Class A Certificates. The ratings of the
Class A-7 Certificates by [S & P] and [Moody's] do not reflect the likelihood of
payment of the Certificateholder's LIBOR Interest Carryover since the
Certificate Guaranty Insurer does not insure payment of such amounts.
FINANCIAL INFORMATION
[The Representative has determined that its financial statements are not
material to the offering made hereby.]
[Financial Statements of the Representative have been incorporated by reference
into this Prospectus Supplement and the Prospectus. See "Incorporation of
Certain Documents by Reference" in the Prospectus.]
The Trust has been formed to own the Loans and to issue the Certificates. The
Trust had no assets or obligations prior to the issuance of the Certificates and
will not engage in any activities other than those described herein.
Accordingly, no financial statements with respect to the Trust are included in
this Prospectus Supplement.
<PAGE>
INDEX OF PRINCIPAL TERMS
Accredited Investor..................................S-78
Agreement............................................S-8
Applicable Majority Certificateholders...............S-79
Authorized Rating Agencies...........................S-82
Balloon Loans........................................S-28
Business Day.........................................S-63
Capitalized Interest Account.........................S-10
Cede.................................................S-37
Certificates.........................................S-1
Certificate Account..................................S-75
Certificateholders' LIBOR Interest Carryover.........S-13
Change Date..........................................S-27
Claims...............................................S-1
Claims Administrator.................................S-1
Class A Certificates.................................S-3
Class A Certificateholder or Holder..................S-3
Class A-1 Adjusted Mortgage Loan Remittance Rate.....S-34
Class A-1 Certificates...............................S-3
Class A-1 Current Interest Requirement...............S-12
Class A-1 Pass-Through Rate..........................S-11
Class A-1 Principal Factor...........................S-68
Class A-2 Adjusted Mortgage Loan Remittance Rate.....S-34
Class A-2 Certificates...............................S-3
Class A-2 Current Interest Requirement...............S-12
Class A-2 Pass-Through Rate..........................S-11
Class A-2 Principal Factor...........................S-68
Class A-3 Adjusted Mortgage Loan Remittance Rate.....S-34
Class A-3 Certificates...............................S-3
Class A-3 Current Interest Requirement...............S-12
Class A-3 Pass-Through Rate..........................S-11
Class A-3 Principal Factor...........................S-68
Class A-4 Adjusted Mortgage Loan Remittance Rate.....S-34
Class A-4 Certificates...............................S-3
Class A-4 Current Interest Requirement...............S-12
Class A-4 Pass-Through Rate..........................S-11
Class A-4 Principal Factor...........................S-68
Class A-5 Adjusted Mortgage Loan Remittance Rate.....S-34
Class A-5 Certificates...............................S-3
Class A-5 Current Interest Requirement...............S-12
Class A-5 Pass-Through Rate..........................S-11
Class A-5 Principal Factor...........................S-68
Class A-6 Adjusted Mortgage Loan Remittance Rate.....S-34
Class A-6 Certificates...............................S-3
Class A-6 Current Interest Requirement...............S-12
Class A-6 Pass-Through Rate..........................S-11
Class A-6 Principal Factor...........................S-68
Class A-7 Adjusted Mortgage Loan Reimittance Rate....S-34
Class A-7 Certificates...............................S-3
Class A-7 Current Interest Requirement...............S-12
Class A-7 Principal Factor...........................S-68
Class A-8 Adjusted Mortgage Loan Remittance Rate.....S-34
Class A-8 Certificates...............................S-3
Class A-8 Current Interest Requirement...............S-12
Class A-8 Pass-Through Rate..........................S-11
Class A-8 Principal Factor...........................S-68
Class A-9 Adjusted Mortgage Loan Remittance Rate....S-34
Class A-9 Certificates...............................S-3
Class A-9 Current Interest Requirement...............S-12
Class A-9 Pass-Through Rate..........................S-11
Class A-9 Principal Factor...........................S-68
Class R Certificates.................................S-3
Closing Date.........................................S-2
Combined Loan-to-Value Ratio.........................S-26
Compensating Interest................................S-34
Constant Prepayment Rate or CPR......................S-55
Contingency Fee......................................S-35
Co-Trustee...........................................S-6
Cross-Over Date......................................S-36
Curtailment..........................................S-34
Custodian............................................S-7
Cut-Off Date.........................................S-6
Dealer Loans.........................................S-43
Definitive Class A Certificates......................S-37
Designated Depository Institution....................S-74
Determination Date...................................S-33
Direct Loans.........................................S-43
DTC..................................................S-37
Due Period...........................................S-17
ERISA................................................S-37
ERISA Considerations.................................S-37
Excess Subordinated Amount...........................S-66
Exemption............................................S-37
Equity Advantage Loans...............................S-47
FHA Insurance Premium................................S-23
FHA Loans............................................S-1
FHA Payment..........................................S-23
FHA Premium Account..................................S-23
Fiscal Agent.........................................S-70
Final Determination..................................S-79
Funding Period.......................................S-10
Guaranty.............................................S-20
Gross Margin.........................................S-27
Home Equity Loans....................................S-1
Home Equity Mortgages................................S-24
Home Equity Mortgage Notes...........................S-24
Home Equity Mortgaged Properties.....................S-24
Home Equity Mortgagor................................S-25
Home Improvement Loans...............................S-1
Home Improvement Mortgages...........................S-28
Home Improvement Mortgage Notes......................S-28
Home Improvement Mortgaged Properties................S-29
Home Improvement Mortgagor...........................S-30
HUD..................................................S-1
Indirect Participants................................S-69
Initial Home Equity Loans............................S-24
Initial Home Improvement Loans.......................S-24
Initial Loans........................................S-24
Initial Pool I Home Equity Loans.....................S-24
Initial Pool II Home Equity Loans....................S-24
Insurance Agreement .................................S-66
Insurance Paying Agent...............................S-19
Insurance Proceeds...................................S-33
Insured Payment......................................S-19
Interest Determination Date.........................S-78
LIBOR................................................S-78
LIBOR Index..........................................S-27
Liquidated Loan......................................S-53
Liquidation Proceeds.................................S-33
Loans................................................S-1
Maximum Subordinated Amount..........................S-66
Certificate Guaranty Insurer.........................S-19
Certificate Guaranty Insurance Policies..............S-19
Monthly Advances.....................................S-23
Monthly Excess Spread................................S-65
Mortgages............................................S-24
Mortgage Notes.......................................S-24
Mortgaged Properties.................................S-25
Mortgagor............................................S-25
Multifamily Loans....................................S-1
Multifamily Mortgages................................S-31
Multifamily Mortgage Interest Rate...................S-32
Multifamily Mortgage Notes...........................S-31
Multifamily Mortgaged Properties.....................S-31
Net Funds Cap........................................S-13
Net Liquidation Proceeds.............................S-69
NHA Act..............................................S-42
90 Day Delinquent FHA Loan...........................S-23
Notice...............................................S-71
Optional Servicer Termination Date...................S-35
Original Pool Principal Balance......................S-35
Originators..........................................S-1
Owner................................................S-71
Participants ........................................S-69
Percentage Interest..................................S-63
Periodic Rate Cap....................................S-27
Permitted Instruments................................S-74
Plans................................................S-37
Pool I...............................................S-1
Pool I Available Amount..............................S-76
Pool I Available Remittance Amount...................S-75
Pool I Carry-Forward Amount..........................S-17
Pool I Certificateholders............................S-9
Pool I Certificates..................................S-9
Pool I Current Interest Requirement..................S-12
Pool I Distribution Amount...........................S-16
Pool I Home Equity Loans.............................S-8
Pool I Loans.........................................S-8
Pool I Mortgage Interest Rate........................S-26
Pool I Principal Distribution Amount.................S-14
Pool II..............................................S-1
Pool II Available Amount.............................S-76
Pool II Available Remittance Amount..................S-75
Pool II Carry-Forward Amount.........................S-17
Pool II Certificateholders...........................S-9
Pool II Certificates.................................S-9
Pool II Current Interest Requirement.................S-12
Pool II Distribution Amount..........................S-16
Pool II Loans........................................S-8
Pool II Principal Distribution Amount................S-14
Pool III.............................................S-1
Pool III Available Amount............................S-76
Pool III Available Remittance Amount................S-75
Pool III Carry-Forward Amount........................S-17
Pool III Certificateholders..........................S-9
Pool III Certificates................................S-9
Pool III Current Interest Requirement................S-12
Pool III Distribution Amount.........................S-16
Pool III Home Improvement Interest Rate..............S-31
Pool III Loans.......................................S-8
Pool III Principal Distribution Amount...............S-14
Pool IV..............................................S-1
Pool IV Available Amount.............................S-76
Pool IV Available Remittance Amount..................S-75
Pool IV Carry-Forward Amount.........................S-17
Pool IV Certificateholders...........................S-9
Pool IV Certificates.................................S-9
Pool IV Current Interest Requirement.................S-12
Pool IV Distribution Amount..........................S-16
Pool IV Loans........................................S-8
Pool IV Principal Distribution Amount................S-14
Pools................................................S-1
Pre-Funded Amount....................................S-9
Pre-Funding Account..................................S-1
Principal and Interest Account.......................S-74
Principal Prepayment.................................S-34
Record Date..........................................S-11
Related Payments.....................................S-23
Released Mortgaged Property Proceeds.................S-34
REMIC................................................S-3
Remittance Date......................................S-3
REO Property.........................................S-36
Representative.......................................S-1
Reserve Amount.......................................S-21
Restricted Group.....................................S-82
Rules................................................S-69
SBA..................................................S-45
SBA Loans............................................S-45
Servicer.............................................S-1
Servicing Fee........................................S-35
SMMEA................................................S-37
Special Remittance Date..............................S-10
Specified Subordinated Amount .......................S-66
Spread Account.......................................S-18
Spread Amount........................................S-18
Student Loans........................................S-45
Subordinated Amount..................................S-66
Subordination Deficit................................S-67
Subordination Reduction Amount.......................S-66
Subsequent Cut-Off Date..............................S-25
Subsequent Loans.....................................S-3
Supplemental Interest Payments.......................S-78
Termination Notice...................................S-78
Termination Price....................................S-36
Title I..............................................S-1
Title I Loan Program.................................S-42
Title I Property Improvement Loans...................S-42
Total Monthly Excess Cashflow........................S-76
Treasury Index.......................................S-27
Trust................................................S-1
Trustee.............................................S-7
Trustee's Loan File..................................S-22
Underwriter..........................................S-1
Unrecovered Amounts..................................S-17
Weighted Average Life................................S-57
<PAGE>
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTQATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRERSENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE REPRESENTATIVE OR THE UNDERWRITERS. THIS PROSPECTUS
SUPPLEMENT AND ACCOMPANYING PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL, OR
A SOLICITATION OF AN OFFER TO BUY, THE CLASS A CERTIFICATES IN ANY JURISDICTION
WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
Summary of Terms.............................. S-5
Risk Factors.................................. S-39
Lending Programs.............................. S-41
The Representative and the
Originators................................... S-45
The Loan Pools................................ S-48
Maturity, Prepayment and Yield
Considerations................................ S-53
Description of the Certificates............... S-62
The Certificate Guaranty Insurance Policies
and The Certificate Guaranty Insurer.......... S-70
The Agreement ................................ S-72
Federal Income Tax Considerations............. S-81
ERISA Considerations.......................... S-81
Legal Investment Considerations............... S-84
Underwriting.................................. S-84
Experts....................................... S-85
Legal Matters................................. S-85
Rating of the Class A
Certificates.................................. S-85
Financial Information ........................ S-85
Index of Principal Terms...................... S-86
PROSPECTUS
Prospectus Supplement ........................ 4
Available Information ........................ 4
Reports to Securityholders.................... 5
Incorporation of Certain
Documents by Reference...................... 5
Summary of Terms ............................. 6
Risk Factors.................................. 23
The Trusts.................................... 28
Use of Proceeds .............................. 42
The Representative and the
Originators................................... 42
The Single Family Loan Lending
Program .................................... 42
Description of the
Certificates ................................. 47
Credit Enhancement ........................... 54
Maturity, Prepayment and Yield
Considerations ............................... 59
The Agreements ............................... 61
Certain Legal Aspects of the
Mortgage Loans ............................... 72
Federal Income Tax Consequences............... 81
ERISA Considerations ......................... 107
Legal Investment
Considerations ............................... 109
Plan of Distribution ......................... 109
Legal Matters ................................ 109
Experts....................................... 110
Financial Information......................... 110
Rating........................................ 110
Index of Principal Terms...................... 111
Appendix I - Auction Procedures
Appendix II Settlement Procedures
<PAGE>
THE MONEY STORE TRUST 1997-__
$________ ____% Class A-1 Certificates
$________ ____% Class A-2 Certificates
$________ ____% Class A-3 Certificates
$________ ____% Class A-4 Certificates
$________ ____% Class A-5 Certificates
$________ ____% Class A-6 Certificates
$________ Adjustable Rate Class A-7 Certificates
$________ ____% Class A-8 Certificates
$________ ____% Class A-9 Certificates
THE MONEY STORE INC.
THE MONEY STORE
ASSET BACKED CERTIFICATES,
SERIES 1997-____
_____________________
PROSPECTUS SUPPLEMENT
_____________________
.................
[NAMES OF UNDERWRITERS]
_______, 1997
________________________________________
________________________________________
<PAGE>
SUBJECT TO COMPLETION
PROSPECTUS DATED SEPTEMBER 9, 1997
PROSPECTUS
THE MONEY STORE INC.
(REPRESENTATIVE)
THE MONEY STORE ASSET BACKED CERTIFICATES
THE MONEY STORE ASSET BACKED NOTES
(ISSUABLE IN SERIES)
This Prospectus relates to The Money Store Asset Backed Certificates
(the "Certificates") and The Money Store Asset Backed Notes (the "Notes" and
collectively with the Certificates, the "Securities") described herein, issuable
in one or more series (each a "Series"), which may be sold from time to time on
terms determined at the time of sale and described in the related Supplement to
this Prospectus (each a "Prospectus Supplement"), evidencing specified interests
in, or rights to receive payments from, one or more trust funds (each, a
"Trust"), the primary assets of which will consist of one or more pools (each, a
"Pool") of certain mortgage loans and certain other mortgage-related or other
similar assets more particularly described herein (the "Mortgage Assets"). The
Mortgage Assets and other assets of any Trust will be described in the
Prospectus Supplement for the related Series of Certificates and/or Notes.
Certain of the Mortgage Assets may have been originated by wholly-owned
subsidiaries (the "Originators") of The Money Store Inc. ("The Money Store" or
the "Representative"). Certain other of the Mortgage Assets may have been
acquired by The Money Store, an Originator or an affiliate thereof from other
lenders or government agencies, or may consist of mortgage pass-through or
mortgage-backed securities issued by government agencies or private lenders. In
addition, if so specified in the related Prospectus Supplement, the Trust will
include monies on deposit in one or more trust accounts to be established with a
Trustee (as defined herein), which may include a Pre-Funding Account (as defined
herein) which would be used to purchase additional Mortgage Assets for the
related Trust from time to time during the Funding Period (as defined herein)
specified in the related Prospectus Supplement. If specified in the related
Prospectus Supplement, certain of the related Securities may evidence a
fractional undivided ownership interest in a Trust which will hold a beneficial
ownership interest in another trust fund which will contain the Mortgage Assets.
Securities may also be entitled to the benefits of insurance policies, cash
accounts, letters of credit, financial guaranty insurance policies, third party
guarantees, guaranties of The Money Store, supplemental interest payments or
other forms of credit enhancement, maturity protection or derivative
instruments, to the extent described in the related Prospectus Supplement. The
Prospectus Supplement for each Series of Securities will name the entities
(which will include The Money Store or one of its affiliates and may include
other entities) which will act, directly or through one or more sub-servicers,
as master servicers (each, in such capacity, the "Master Servicer") of such
Mortgage Assets.
Each Series of Securities will be issued in one or more classes (each,
a "Class"). Each Class of Securities of any series will represent the right to
receive, or be secured by, a specified amount of payments of principal and/or
interest on the related Mortgage Assets in the manner described herein and in
the related Prospectus Supplement. The right of each Class of Securities to
receive payments may be senior or subordinate to the rights of one or more of
the other Classes of such Series. The right of the holders of any Class of Notes
("Noteholders") and the right of the holders of any Class of Certificates
("Certificateholders" and collectively with the Noteholders, "Securityholders"
or "Holders") to receive any distributions of principal and interest will be set
forth in the related Prospectus Supplement. A Series may include two or more
Classes of Certificates and/or Notes which differ as to the timing and priority
of payment, interest rate or amount of distributions in respect of principal or
interest or both. A Series may include one or more Classes of Certificates
and/or Notes entitled to distributions in respect of principal, with
disproportionate, nominal or no interest distributions, or to interest
distributions, with disproportionate, nominal or no distributions in respect of
principal. Distributions on Certificates of any Series will be subordinated to
prior payments due on the related Notes, if any, to the extent described herein
and in the related Prospectus Supplement. The Securities of each Series will
represent fractional undivided ownership interests in the related Trust.
<PAGE>
SEE RISK FACTORS ON PAGE 23 HEREIN FOR A DISCUSSION OF CERTAIN RISK
FACTORS WHICH SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SECURITIES
OFFERED HEREBY.
------------------------
The date of this Prospectus is _________-- __, 1997
<PAGE>
[INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY STATE.]
Distributions to Holders of Securities will be made on certain dates
specified in the related Prospectus Supplement (each, a "Remittance Date"),
which may be monthly, quarterly, semi-annually or at such other intervals as are
specified therein. The rate at which any Class of Certificates (the
"Pass-Through Rate") or the rate at which any Class of Notes (the "Interest
Rate") bear interest or the method of calculating such Pass-Through Rate or
Interest Rate, which may be fixed or variable, will be set forth in the related
Prospectus Supplement. Distributions on the Certificates and/or Notes of a
Series will be made only from the assets of the related Trust and certain
related property. The Pass-Through Rate for a Class of Certificates or the
Interest Rate for a Class of Notes that bear interest based upon a floating rate
of interest, as specified in the related Prospectus Supplement, may base such
floating rate upon any of following: (i) the auction procedures described herein
(such Securities being referred to herein as "Auction Rate Securities"), (ii)
the London interbank offered rate for U.S. dollar deposits for a specified
period ("LIBOR") plus an amount set forth in the related Prospectus Supplement ,
(iii) the average bond equivalent rates of weekly auctions of Treasury bills for
a specified period (the "T-Bill Rate") plus an amount set forth in the related
Prospectus Supplement or (iv) any such other method or procedures used to
determine the floating rate of interest as may be described in the applicable
Prospectus Supplement.
The Securities will not represent an obligation of or interest in the
Representative (except for any Guaranty (as defined herein) issued in connection
with a Series), the Originators, or any affiliate thereof and, except to the
extent described herein or specified in the related Prospectus Supplement, will
not be insured or guaranteed by any governmental agency or instrumentality or
(except as otherwise specified in the related Prospectus Supplement) by any
other person. Unless otherwise specified in the related Prospectus Supplement,
the only obligations of the Representative or the Originators with respect to a
Series of Securities will be pursuant to certain limited representations and
warranties. Except for certain representations and warranties relating to the
Mortgage Assets and certain other exceptions, the Master Servicer's obligations
with respect to the related Series of Certificates and/or Notes will be limited
to its contractual servicing obligations. If the amount available for
distribution to Holders on any Remittance Date is less than the amount due to
them, the Master Servicer, to the extent provided in the related Prospectus
Supplement, may be obligated, under certain terms and conditions, to advance
cash to such Holders, to the extent such deficiency is attributable to
delinquent payments of principal and/or interest during the immediately
preceding Due Period (as defined herein). See "Description of the Securities -
Monthly Advances and Compensating Interest."
The yield to Holders on each Class of Certificates and/or Notes of a
Series may be affected by the rate of payment of principal (including
prepayments) of the Mortgage Assets in the related Trust and the timing of
receipt of such payments as described herein and in the related Prospectus
Supplement. A Trust may be subject to early termination under the circumstances
described herein and in the related Prospectus Supplement.
If specified in a Prospectus Supplement, an election may be made to
treat each Trust as a "real estate mortgage investment conduit" ("REMIC") for
federal income tax purposes. See "Federal Income Tax Consequences."
<PAGE>
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS OR THE RELATED PROSPECTUS SUPPLEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS
NOT PASSED ON OR ENDORSED THE MERITS OF THIS
OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
Offers of the Securities may be made through one or more different
methods, including offerings through underwriters, as more fully described under
"Plan of Distribution" herein and in the related Prospectus Supplement. The
intention of any underwriter to make a secondary market in the Securities will
be set forth in the related Prospectus Supplement. There can be no assurance
that a secondary market for the Securities will develop, or if it does develop,
that it will continue. This Prospectus may not be used to consummate sales of a
Series of Securities unless accompanied by a Prospectus Supplement.
Until 90 days after the date of each Prospectus Supplement, all dealers
effecting transactions in the securities covered by such Prospectus Supplement,
whether or not participating in the distribution thereof, may be required to
deliver such Prospectus Supplement and this Prospectus. This is in addition to
the obligation of dealers to deliver a Prospectus and Prospectus Supplement when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
PROSPECTUS SUPPLEMENT
The Prospectus Supplement relating to a Series of Certificates and/or
Notes to be offered hereunder, among other things, will set forth with respect
to such Series of Certificates and/or Notes: (i) the aggregate principal amount,
the Pass-Through Rate, Interest Rate or Rates or other applicable annual rate or
rates of interest (or the manner of determining such rate or rates) and
authorized denominations of each Class of such Certificates and/or Notes; (ii)
certain information concerning the Mortgage Assets and insurance policies, cash
accounts, letters of credit, financial guaranty insurance policies, third party
guarantees, guaranties of The Money Store, supplemental interest payments or
other forms of credit enhancement or maturity protection or other derivative
instruments, if any, relating to the Pools or all or part of the related
Certificates and/or Notes; (iii) the specified interest of each Class of
Certificates and/or Notes in, and manner and priority of, the distributions on
the Mortgage Assets; (iv) information as to the nature and extent of
subordination with respect to such Series of Certificates and/or Notes, if any;
(v) the Remittance Dates; (vi) information as to the Master Servicer; (vii) the
circumstances, if any, under which each Trust may be subject to early
termination; (viii) whether the Representative intends to elect to cause the
Trust to be treated as a REMIC; and (ix) additional information with respect to
the plan of sale of such Certificates and/or Notes.
AVAILABLE INFORMATION
The Representative has filed a Registration Statement under the
Securities Act of 1933, as amended (the "1933 Act"), with the Securities and
Exchange Commission (the "Commission") with respect to the Securities. The
Registration Statement and amendments thereof and to the exhibits thereto, as
well as such reports and other information, are available for inspection without
charge at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549; 7 World Trade Center, 13th Floor,
New York, New York 10048; and Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of the Registration
Statement and amendments thereof and exhibits thereto may be obtained from the
Public Reference Section of the Commission, 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates. The Commission maintains a Web site that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. The address
of such site is http://www.sec.gov.
<PAGE>
No person has been authorized to give any information or to make any
representation other than those contained in this Prospectus and any Prospectus
Supplement with respect hereto and, if given or made, such information or
representations must not be relied upon. This Prospectus and any Prospectus
Supplement with respect hereto do not constitute an offer to sell or a
solicitation of an offer to buy any securities other than the Securities offered
hereby and thereby nor an offer of the Securities to any person in any state or
other jurisdiction in which such offer would be unlawful. The delivery of this
Prospectus at any time does not imply that information herein is correct as of
any time subsequent to its date.
REPORTS TO SECURITYHOLDERS
Periodic and annual reports concerning any Securities and the related
Trust will be provided to the Securityholders as described in the related
Prospectus Supplement. If specified in the related Prospectus Supplement, a
Series of Certificates and/or Notes may be issuable in book-entry form. In such
event, the related Certificates and/or Notes may be registered in the name of
Cede & Co. ("Cede"), the nominee of The Depository Trust Company ("DTC") or
another nominee. All reports will be provided to Cede or such other nominee,
which in turn will provide such reports to Participants and Indirect
Participants (as defined herein) of DTC or such other entities as described in
the related Prospectus Supplement. Such Participants and Indirect Participants
will then forward such reports to the beneficial owners of Securities. See
"Description of the Securities - Book-Entry Registration."
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents filed by or on behalf of the Trust referred to in the
accompanying Prospectus Supplement with the Commission pursuant to Section
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), subsequent to the date of this Prospectus and prior to the
termination of the offering of the Certificates issued by such Trust shall be
deemed to be incorporated by reference in this Prospectus and the related
Prospectus Supplement and to be a part hereof from the date of the filing of
such documents. With respect to any Class of Certificates and/or Notes that is
supported by a Guaranty of The Money Store (a "Guaranty"), The Money Store's
Annual Report on Form 10-K for the year ended December 31, 1996, and Quarterly
Reports on Form 10-Q for the periods ended March 31 and June 30, 1997, which
have been filed with the Commission, are hereby incorporated by reference in
this Prospectus and the related Prospectus Supplement . With respect to any
Class of Securities that is supported by a Guaranty, all documents filed by The
Money Store pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934, as amended, subsequent to the date of this Prospectus and
prior to the termination of the offering of the Securities shall be deemed to be
incorporated by reference into this Prospectus and the related Prospectus
Supplement and to be a part hereof from the respective dates of filing such
documents. Any statement contained herein or in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein (or in the accompanying Prospectus Supplement) or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute part of this Prospectus. The Representative will provide without
charge to each person to whom a copy of the Prospectus is delivered, on the
written or oral request of any such person, a copy of any or all of the
documents incorporated herein by reference, except the exhibits to such
documents (unless such exhibits are specifically incorporated by reference in
such documents). Requests for such copies should be directed to The Money Store
Inc., 3301 C Street, Suite 100-M, Sacramento, California 95816, Attention:
Investor Relations, Telephone: (916) 446-5000.
<PAGE>
SUMMARY OF TERMS
This summary is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus and in the related Prospectus
Supplement. Capitalized terms used but not defined in this Prospectus shall have
the meanings assigned to such terms elsewhere in this Prospectus.
Securities
Offered........................... The Money Store Asset Backed
Certificates (the "Certificates") and The
Money Store Asset Backed Notes (the
"Notes"). Notes are issuable from time to
time in Series pursuant to an Indenture (an
"Indenture"), and Certificates are issuable
from time to time in Series pursuant to
either a Pooling and Servicing Agreement (a
"Pooling and Servicing Agreement") or a
Trust Agreement (a "Trust Agreement"). As
used herein, "Agreements" means,
collectively, with respect to a Series of
Certificates, the related Pooling and
Servicing Agreement or the related Trust
Agreement, with respect to a Series of
Notes, the related Indenture and the related
Sale and Servicing Agreement, as the context
requires, and with respect to a Series of
Securities, the relevant combination of
Agreements for such Series. Each Certificate
of a Series will evidence an interest in the
Trust Fund or Trust Funds for such Series,
as specified in the related Prospectus
Supplement. Each Series of Securities will
consist of one or more Classes, each Class
may differ in, among other things, the
amounts allocated to and the priority of
principal and interest payments. The
Securities of each Class will be issued in
fully registered form in the denominations
specified in the related Prospectus
Supplement. If so specified in the related
Prospectus Supplement, the Securities or
certain Classes of such Securities offered
thereby may be available in book-entry form
only.
Issuers........................... Certain trust funds (each, a
"Trust") represented by The Money Store or
its affiliates, the primary assets of which
will be one or more Pools of Mortgage Loans
and certain other Mortgage Assets.
Representative
and Master
Servicer.......................... The Money Store Inc. ("The Money Store"), a
New Jersey corporation or certain of its
affiliates. The Prospectus Supplement
relating to any Series of Certificates
and/or Notes will name the entities (which
may include The Money Store or one of its
affiliates and may additionally include
other unrelated entities) which will act,
directly or through one or more
Sub-Servicers (as defined herein), as master
servicers (each, in such capacity, the
"Master Servicer"), on the terms and
conditions set forth in the related Pooling
and Servicing Agreement or Sale and
Servicing Agreement (a "Sale and Servicing
Agreement"). The principal offices of The
Money Store are located in Sacramento,
California and Union, New Jersey. See "The
Representative and the Originators."
The Mortgage
Assets............................ The Securities will evidence
fractional undivided ownership interests in
certain Trusts further described herein. The
primary assets of each Trust may consist of
one or more pools (each, a "Pool") of
Mortgage Loans and certain other
mortgage-related assets ("Mortgage Assets")
specified in the related Prospectus
Supplements, which may include (i) first,
second and more junior lien mortgage loans,
deeds of trust or participations therein
secured by one- to four-family residential
properties, including low-rise condominiums,
single family detached homes, single-family
attached homes, planned unit developments
and mixed use properties (collectively,
"Single Family Loans," which Single Family
Loans may be "Conventional Loans" (i.e.,
loans that are not insured or guaranteed by
any governmental agency) or loans that are
insured by the Federal Housing Authority
("FHA") or partially guaranteed by the
Veterans' Administration ("VA") as specified
in the related Prospectus Supplement), (ii)
loans or participations therein secured by
security interests or similar liens on
shares in private, non-profit cooperative
housing corporations ("Cooperatives") and on
the related proprietary leases or occupancy
agreements granting exclusive rights to
occupy specific dwelling units in such
Cooperatives' buildings ("Cooperative
Loans"), (iii) first, second and more junior
lien mortgage loans, deeds of trust or
participations therein secured by
multifamily residential or mixed-use
properties, such as rental apartment
buildings (including buildings owned by
Cooperatives) or projects containing five or
more residential units ("Multifamily
Loans"), (iv) conditional sales contracts
and installment sales or loan agreements or
participations therein secured by
manufactured housing ("Contracts"), (v)
mortgage-backed securities issued or
guaranteed by the Government National
Mortgage Association ("GNMA"), the Federal
National Mortgage Association ("FNMA") or
the Federal Home Loan Mortgage Corporation
("FHLMC") (the "Agency Securities"), (vi)
privately issued mortgage-backed securities
not constituting Agency Securities ("Private
Mortgage-Backed Securities" or "PMBS"),
(vii) first, second and more junior home
improvement mortgage loans that are either
conventional loans ("Secured Conventional
Home Improvement Loans") or loans originated
under the Title I credit insurance program
created under the National Housing Act of
1934 by the Federal Housing Administration
("FHA Loans"), and (viii) unsecured home
improvement loans consisting of conventional
unsecured home improvement loans and FHA
insured home improvement loans (the
"Unsecured Home Improvement Loans"). The
Single Family Loans, Cooperative Loans,
Multifamily Loans, Secured Conventional Home
Improvement Loans, FHA Loans and Unsecured
Home Improvement Loans are sometimes
referred to herein collectively as the
"Mortgage Loans." The Mortgage Loans may be
closed-end or revolving as described in the
related Prospectus Supplement.
A. Mortgage
Loans........................ The payment terms of the
Mortgage Loans to be included in any Pool
will be described in the related Prospectus
Supplement and may include any of the
following features, combinations thereof or
other features described in the related
Prospectus Supplement:
(a) Interest may be payable at a
fixed rate (a "Fixed Rate") or may be
payable at a rate that is adjustable
from time to time in relation to an
index, that may be fixed for a period of
time or under certain circumstances and
is followed by an adjustable rate, a
rate that other-wise varies from time to
time, or a rate that is convertible from
an adjustable rate to a fixed rate
(each, an "Adjustable Rate"). The
specified rate of interest on a Mortgage
Loan is its "Mortgage Interest Rate."
Changes to an Adjustable Rate may be
subject to periodic limitations, maximum
rates, minimum rates or a combination of
such limitations. Accrued interest may
be deferred and added to the principal
of a Mortgage Loan for such periods and
under such circumstances as may be
specified in the related Prospectus
Supplement. Mortgage Loans may permit
the payment of interest at a rate lower
than the Mortgage Interest Rate for a
period of time or for the life of the
Mortgage Loan, and the amount of any
difference may be contributed from funds
supplied by the seller of the properties
securing the related Mortgage Loan (the
"Mortgaged Properties") or another
source or may be treated as accrued
interest and added to the principal of
the Mortgage Loan.
(b) Principal may be payable on a
level basis to fully amortize the
Mortgage Loan over its term, may be
calculated on the basis of an assumed
amortization schedule that is
significantly longer than the original
term to maturity or on an interest rate
that is different from the Mortgage
Interest Rate, or may not be amortized
during all or a portion of the original
term. Payment of all or a substantial
portion of the principal may be due on
maturity (a "balloon" payment). From
time to time, principal may include
interest that has been deferred and
added to the principal balance of the
Mortgage Loan.
(c) Monthly payments of principal
and interest may be fixed for the life
of the Mortgage Loan, may increase over
a specified period of time ("graduated
payments"), or may change from period to
period. Mortgage Loans may include
limits on periodic increases or
decreases in the amount of monthly
payments and may include maximum or
minimum amounts of monthly payments.
(d) Prepayments of principal may
be subject to a prepayment fee, which
may be fixed for the life of the
Mortgage Loan or may adjust or decline
over time, and may be prohibited for the
life of the Mortgage Loan or for certain
periods ("Lockout Periods"). Certain
Mortgage Loans may permit prepayments
after expiration of the applicable
Lockout Period and may require the
payment of a prepayment fee in
connection with any such subsequent
prepayment. Other Mortgage Loans may
permit prepayments without payment of a
fee unless the prepayment occurs during
specified time periods. The Mortgage
Loans may include due-on-sale clauses
which permit the mortgagee to demand
payment of the entire Mortgage Loan in
connection with the sale or certain
other transfers of the related Mortgaged
Properties. Other Mortgage Loans may be
assumable by persons meeting the then
applicable underwriting standards of the
originator.
The Mortgaged Properties
relating to Mortgage Loans may be located in
any one of the fifty states, the District of
Columbia, the Commonwealth of Puerto Rico or
any other commonwealth, territory or
possession of the United States. The
Mortgaged Properties generally will be
covered by standard hazard insurance
policies ("Standard Hazard Insurance
Policies") insuring against losses due to
fire and various other causes. The Mortgage
Loans may be covered by Primary Mortgage
Insurance Policies to the extent provided in
the related Prospectus Supplement. As set
forth in the related Prospectus Supplement,
certain of the Mortgage Loans underlying a
given Series of Securities may have been
originated by the Representative, the
Originators or affiliates thereof and
certain Mortgage Loans may have been
purchased by the Representative, an
Originator or an affiliate thereof in the
open market or in privately negotiated
transactions, including transactions with
entities affiliated with the Representative.
Certain of the Mortgage Loans
may be partially insured by the FHA, an
agency of the United States Department of
Housing and Urban Development ("HUD"),
pursuant to the Title I credit insurance
program (the "Title I Loan Program") of the
National Housing Act of 1934. Several types
of loans may be made under the Title I Loan
Program, including (1) property improvement
loans; (2) manufactured home purchase loans,
(3) manufactured home lot loans; and (4)
combination loans (to purchase a
manufactured home and a lot). The Title I
Loan Program is a coinsurance program. The
lender initially is at risk for 10% of the
principal balance of each loan. The FHA will
insure the remaining 90% of the principal
balance of each loan, subject to certain
limits. Such FHA insurance is accorded the
full faith and credit of the United States
of America.
The Prospectus Supplement for
each Series of Securities generally will
specify with respect to all Mortgage Loans
expected to be included in the related Pool
as of the related closing date, among other
things, (i) the expected aggregate
outstanding principal balance and the
expected average outstanding principal
balance of the Mortgage Loans in such Pool
as of the date specified in the Prospectus
Supplement, (ii) the largest expected
principal balance and the smallest expected
principal balance of any of the Mortgage
Loans, (iii) the types of Mortgaged
Properties and/or other assets securing the
Mortgage Loans and the percentage, if any,
of Unsecured Home Improvement Loans expected
to be included in the related Pool, (iv) the
original terms to maturity of the Mortgage
Loans, (v) the expected weighted average
term to maturity of the Mortgage Loans as of
the date specified in the Prospectus
Supplement and the expected range of the
terms to maturity, (vi) the earliest
origination date and latest maturity date of
any of the Mortgage Loans, (vii) the
expected weighted average Combined
Loan-to-Value Ratios at origination (viii)
the expected weighted average Mortgage Rate
or APR and ranges of Mortgage Rates or APRs
borne by the Mortgage Loans or Contracts (as
the case may be), (ix) in the case of
Mortgage Loans having Adjustable Rates, the
expected weighted average of the Adjustable
Rates as of the date set forth in the
Prospectus Supplement and maximum permitted
Adjustable Rates, if any, (x) the expected
aggregate outstanding principal balance, if
any, of "buydown" mortgage loans (as
hereinafter described) and Mortgage Loans
having graduated payment provisions, as of
the date set forth in the Prospectus
Supplement, (xi) the amount of any Guaranty
Insurance Policy, Mortgage Pool Insurance
Policy, Special Hazard Insurance Policy or
Bankruptcy Bond (each as defined herein) to
be maintained with respect to such Pool,
(xii) the amount, if any, and terms of any
other credit enhancement or other derivative
instruments to be provided with respect to
all or any Mortgage Loans or the Pool and
(xiii) the expected geographic location of
the Mortgaged Properties, if any.
B. Contracts..................... Contracts will consist of
conditional sales and installment sales or
loan agreements secured by new or used
Manufactured Homes (as defined herein). To
the extent provided in the related
Prospectus Supplement, each Contract will be
fully amortizing and will bear interest at a
fixed annual percentage rate ("APR").
<PAGE>
C. Agency
Securities................... The Agency Securities will
consist of (i) fully modified pass-through
mortgage-backed certificates guaranteed as
to timely payment of principal and interest
by the Government National Mortgage
Association ("GNMA Certificates"), (ii)
guaranteed mortgage pass-through
certificates issued and guaranteed as to
timely payment of principal and interest by
the Federal National Mortgage Association
("FNMA Certificates"), (iii) Mortgage
Participation Certificates issued and
guaranteed as to timely payment of interest
and, unless otherwise specified in the
related Prospectus Supplement, ultimate
payment of principal by the Federal Home
Loan Mortgage Corporation ("FHLMC
Certificates"), (iv) stripped
mortgage-backed securities representing an
undivided interest in all or a part of
either the principal distributions (but not
the interest distributions) or the interest
distributions (but not the principal
distributions) or in some specified portion
of the principal and interest distributions
(but not all of such distributions) on
certain GNMA, FNMA, FHLMC or other
government agency or government-sponsored
agency Certificates and, unless otherwise
specified in the Prospectus Supplement,
guaranteed to the same extent as the
underlying securities, (v) another type of
guaranteed pass-through certificate issued
or guaranteed by GNMA, FNMA, FHLMC or
another government agency or
government-sponsored agency and described in
the related Prospectus Supplement, or (vi) a
combination of such Agency Securities. All
GNMA Certificates will be backed by the full
faith and credit of the United States. No
FNMA or FHLMC Certificates will be backed,
directly or indirectly, by the full faith
and credit of the United States. The Agency
Securities may consist of pass-through
securities issued under the GNMA I Program,
the GNMA II Program, FHLMC's Cash or
Guarantor Program or another program
specified in the Prospectus Supplement. The
payment characteristics of the Mortgage
Loans underlying the Agency Securities will
be described in the related Prospectus
Supplement. See "The Trusts--Agency
Securities."
D. Private Mortgage-
Backed
Securities................... Private Mortgage-Backed
Securities may include (i) mortgage
participations or pass-through certificates
representing beneficial interests in certain
mortgage loans or (ii) Collateralized
Mortgage Obligations ("CMOs") secured by
such mortgage loans. Although individual
mortgage loans underlying a Private
Mortgage-Backed Security (each an
"Underlying Mortgage Loan") may be insured
or guaranteed by the United States or an
agency or instrumentality thereof, they need
not be, and the Private Mortgage-Backed
Securities themselves will not be, so
insured or guaranteed. Unless otherwise
specified in the Prospectus Supplement
relating to a Series of Securities, payments
on the Private Mortgage-Backed Securities
will be distributed directly to the Trustee
as registered owner of such Private
Mortgage-Backed Securities. See "The
Trusts--Private Mortgage-Backed Securities."
The Prospectus Supplement for
each Series of Securities will specify, with
respect to any Private Mortgaged-Backed
Securities owned by the related Trust: (i)
the aggregate approximate principal amount
and type of Private Mortgage- Backed
Securities; (ii) certain characteristics of
the mortgage loans underlying the Private
Mortgage-Backed Securities, including (A)
the payment features of such mortgage loans,
(B) the approximate aggregate principal
amount, if known, of the underlying mortgage
loans which are insured or guaranteed by a
governmental entity, (C) the servicing fee
or range of servicing fees with respect to
such mortgage loans, and (D) the minimum and
maximum stated maturities of the mortgage
loans at origination; (iii) the maximum
original term-to-stated maturity of the
Private Mortgage-Backed Securities; (iv) the
weighted average term-to-stated maturity of
the Private Mortgage-Backed Securities; (v)
the pass-through or certificate rate or
ranges thereof for the Private Mortgage-
Backed Securities; (vi) the weighted average
pass-through or certificate rate of the
Private Mortgage-Backed Securities; (vii)
the issuer of the Private Mortgage-Backed
Securities (the "PMBS Issuer"), the servicer
of the Private Mortgage-Backed Securities
(the "PMBS Servicer") and the trustee of the
Private Mortgage-Backed Securities (the
"PMBS Trustee"); (viii) certain
characteristics of credit support, if any,
such as reserve funds, insurance policies,
letters of credit, financial guaranty
insurance policies or third party
guarantees, relating to the mortgage loans
underlying the Private Mortgage-Backed
Securities, or to such Private
Mortgage-Backed Securities themselves; (ix)
the terms on which underlying mortgage loans
for such Private Mortgage-Backed Securities
may, or are required to, be repurchased
prior to stated maturity; and (x) the terms
on which substitute mortgage loans may be
delivered to replace those initially
deposited with the PMBS Trustee. See "The
Trusts."
Pre-Funding
Account........................... If provided in the related Prospectus
Supplement, the original principal amount of
a Series of Securities may exceed the
principal balance of the Mortgage Assets
initially being delivered to the Trustee.
Cash in an amount up to the amount of such
difference (such amount, the "Pre-Funded
Amount") will be deposited into a separate
trust account (the "Pre-Funding Account")
maintained with the Trustee for the benefit
of the Holders. During the period set forth
in the related Prospectus Supplement (the
"Funding Period"), the Pre-Funded Amount in
the Pre-Funding Account may be used to
purchase additional Mortgage Assets for the
related Trust subject to the satisfaction of
certain conditions specified under the
Agreements.
For a Trust that elects to be
characterized as either a REMIC or a grantor
trust under current federal income tax laws,
the maximum length of the related Funding
Period will not exceed three calendar months
or 90 days, respectively, from the date of
issuance of the Securities and otherwise the
maximum length of the Funding Period will
not exceed the period set forth in the
related Prospectus Supplement. The amount of
the initial Pre-Funded Amount is intended
not to exceed the aggregate principal
balance of additional Mortgage Assets that
the Representative anticipates will be
acquired and conveyed to the Trust during
the applicable Funding Period.
Prior to the conveyance of any
additional Mortgage Assets to the Trust, the
Representative will be required to give
notice of the additional Mortgage Assets to
be conveyed to the Trust to the Trustee(s)
and any third-party credit enhancement
provider. Upon the satisfaction of the
conditions set forth in the Agreement, the
Trustee will release from the Pre-Funding
Account the necessary funds to purchase the
additional Mortgage Assets to be conveyed to
the Trust on such date. If any Pre-Funded
Amount remains on deposit in the Pre-Funding
Account at the end of the Funding Period,
such amount, in the amounts and in the
manner specified in the related Prospectus
Supplement, will be used to prepay some or
all Classes of the related Series of
Certificates and/or Notes.
Revolving Period and
Amortization Period;
Retained Interest.............. If the related Prospectus
Supplement so provides, there may be a
period commencing on the date of issuance of
a Class or Classes of Notes and/or
Certificates of a Series and ending on the
date set forth in the related Prospectus
Supplement (each, a "Revolving Period")
during which limited or no principal
payments will be made to one or more Classes
of Notes and/or Certificates of the related
Series as are identified in such Prospectus
Supplement. Some or all collections of
principal otherwise allocated to such
Classes of Notes or Certificates may be (i)
utilized during the Revolving Period to
acquire additional Mortgage Assets which
satisfy the criteria described under "The
Trusts--The Mortgage Loans" and the criteria
set forth in the related Prospectus
Supplement, (ii) held in an account and
invested in Permitted Investments (as
defined herein), for later distribution to
Securityholders, (iii) applied to those
Notes or Certificates for such Series, if
any, specified in the related Prospectus
Supplement as then are in amortization, or
(iv) otherwise applied as specified in the
related Prospectus Supplement.
An "Amortization Period" is the
period during which an amount of principal
is payable to Holders of Securities which,
during the Revolving Period, were not
otherwise entitled to such payments. If so
specified in the related Prospectus
Supplement, during an Amortization Period
all or a portion of principal collections on
the Mortgage Loans may be applied as
specified above for a Revolving Period and,
to the extent not so applied, will be
distributed to the Classes of Notes and/or
Certificates for such Series specified in
the related Prospectus Supplement as then
being entitled to payments of principal. In
addition, if so specified in the related
Prospectus Supplement, amounts deposited in
certain accounts for the benefit of one or
more Classes of Notes or Certificates for
such Series may be released from time to
time or on a specified date and applied as a
payment of principal on such Classes of
Notes and/or Certificates. The related
Prospectus Supplement will set forth the
circumstances which will result in the
commencement of an Amortization Period.
Each Series which has a
Revolving Period may also issue to the
Representative or one of its affiliates a
certificate evidencing an undivided
beneficial interest (a "Retained Interest")
in such Series not represented by the other
Securities issued by the related Trusts. As
further described in the related Prospectus
Supplement, the value of such Retained
Interest will fluctuate as the amount of
Notes and Certificates of the related Series
of Securities outstanding is reduced.
Description of the
Certificates...................... Each Certificate will represent
a fractional undivided ownership interest in
the Trust created pursuant to the related
Agreement. The primary assets of such Trust
will be a Pool of Mortgage Loans and certain
other Mortgage Assets. The Certificates of
any Series may be issued in one or more
Classes, as specified in the related
Prospectus Supplement. A Series of
Certificates may include one or more Classes
of senior Certificates (collectively,
"Senior Certificates") which receive certain
preferential treatment specified in the
related Prospectus Supplement with respect
to one or more Classes of subordinate
Certificates (collectively, the
"Subordinated Certificates"). In addition, a
Series may include one or more Series
entitled to (i) principal payments with
disproportionate, nominal or no interest
payments or (ii) interest payments with
disproportionate, nominal or no principal
payments (such Certificates, "Strip
Certificates"). Certain Series or Classes of
Certificates may be covered by a Guaranty
Insurance Policy, Mortgage Pool Insurance
Policy, Special Hazard Insurance Policy,
Bankruptcy Bond or other insurance policies,
cash accounts, letters of credit, financial
guaranty insurance policies, third party
guarantees, supplemental interest payments
or other forms of credit enhancement or
maturity protection, or derivative products
as described herein and in the related
Prospectus Supplement.
Each Class of Certificates
within a Series will evidence the interests
specified in the related Prospectus
Supplement, which may (i) include the right
to receive distributions allocable only to
principal, only to interest or to any
combination thereof; (ii) include the right
to receive distributions only of prepayments
of principal throughout the lives of the
Certificates or during specified periods;
(iii) be subordinated in its right to
receive distributions of scheduled payments
of principal, prepayments of principal,
interest or any combination thereof to one
or more other Classes of Certificates of
such Series throughout the lives of the
Certificates or during specified periods or
may be subordinated with respect to certain
losses or delinquencies; (iv) include the
right to receive such distributions only
after the occurrence of events specified in
the Prospectus Supplement; (v) include the
right to receive distributions in accordance
with a schedule or formula or on the basis
of collections from designated portions of
the assets in the related Trust; (vi)
include, as to Certificates entitled to
distributions allocable to interest, the
right to receive interest at a fixed rate or
a floating rate; and (vii) include, as to
Certificates entitled to distributions
allocable to interest, the right to
distributions allocable to interest only
after the occurrence of events specified in
the related Prospectus Supplement, and in
each case, may accrue interest until such
events occur, as specified in such
Prospectus Supplement. The timing and
amounts of such distributions may vary among
Classes, over time, or otherwise as
specified in the related Prospectus
Supplement. The Pass-Through Rate for a
Class of Certificates that pay interest
based upon a floating rate of interest, as
specified in the related Prospectus
Supplement, may base such floating rate upon
any of following: (i) the auction procedures
for Auction Rate Securities described
herein, (ii) LIBOR plus an amount set forth
in the related Prospectus Supplement , (iii)
the T-Bill Rate plus an amount set forth in
the related Prospectus Supplement or (iv)
any such other method or procedures used to
determine the floating rate of interest as
may be described in the applicable
Prospectus Supplement.
The Certificates will be
issuable in fully registered form, in
minimum denominations of $1,000 and integral
multiples of $1,000 in excess thereof (or
such other amounts as may be set forth in a
Prospectus Supplement), except that one
Certificate of each Class may be issued in a
different denomination. See "Description of
Securities."
With respect to any Series of
Securities including one or more Classes of
Notes, distributions in respect of the
Certificates may be subordinated in priority
of payment to payments on the Notes of such
Series, to the extent specified in the
related Prospectus Supplement.
Description of the Notes.......... Any Series of Securities may
include one or more Classes of Notes, as
specified in the related Prospectus
Supplement, each of which will be issued
pursuant to an Indenture and will be treated
as debt obligations of the related Trust.
Unless otherwise specified in
the related Prospectus Supplement, Notes
will be available for purchase in
denominations of $1,000 and integral
multiples of $1,000 (or such other accounts
as may be set forth in a Prospectus
Supplement), except that one Note of each
Class may be issued in a different
denomination, in book-entry form or in
definitive form, as specified in the related
Prospectus Supplement. See "Description of
the Securities."
Each Class of Notes will have a
stated principal amount and will bear
interest at the Interest Rate or Rates as
specified in the related Prospectus
Supplement, which may be different for each
Class of Notes and may be fixed, variable,
adjustable, or any combination of the
foregoing. The related Prospectus Supplement
will specify the Interest Rate for each
Class of Notes or the method for determining
the Interest Rate. The Interest Rate for a
Class of Notes that pay interest based upon
a floating rate of interest, as specified in
the related Prospectus Supplement, may base
such floating rate upon any of following:
(i) the auction procedures for Auction Rate
Securities described herein, (ii) LIBOR plus
an amount set forth in the related
Prospectus Supplement , (iii) the T-Bill
Rate plus an amount set forth in the related
Prospectus Supplement or (iv) any such other
method or procedures used to determine the
floating rate of interest as may be
described in the applicable Prospectus
Supplement. Each Note may also represent a
fractional undivided interest in, or be
entitled to receive payments from, monies on
deposit, if any, in the Pre-Funding Account
as specified in the related Prospectus
Supplement and any other account established
for the benefit of Noteholders, as specified
in the related Prospectus Supplement.
A Series may include two or more
Classes of Notes which differ as to the
timing and priority of payment, seniority,
allocations of loss, Interest Rate or amount
of payments of principal or interest, or as
to which payments of principal or interest
may or may not be made upon the occurrence
of specified events or on the basis of
collections from designated portions of the
Mortgage Assets for such Series. In
addition, a Series may include one or more
Classes of Notes entitled to (i) principal
payments with disproportionate, nominal or
no interest payments or (ii) interest
payments with disproportionate, nominal or
no principal payments (such Notes, "Strip
Notes"). A Series of Notes may include one
or more Classes of senior Notes
(collectively, "Senior Notes") which receive
certain preferential treatment specified in
the related Prospectus Supplement with
respect to one or more Classes of
subordinate Notes (collectively, the
"Subordinated Notes"). Certain Series or
Classes of Notes may be covered by a
Guaranty Insurance Policy, Mortgage Pool
Insurance Policy, Special Hazard Insurance
Policy, Bankruptcy Bond or other insurance
policies, cash accounts, letters of credit,
financial guaranty insurance policies, third
party guarantees, supplemental interest
payments or other forms of credit
enhancement or maturity protection or
derivative instruments, as described herein
and in the related Prospectus Supplement.
Credit
Enhancement ...................... The Mortgage Assets in a Trust
or the Securities of one or more Classes in
the related Series may have the benefit of
one or more types of credit enhancement, as
described in the related Prospectus
Supplement. The protection against losses
afforded by any such credit support may be
limited. Such credit enhancement may include
one or more of the following types:
A. Subordination
and Reserve
Accounts..................... The rights of all
Certificateholders will be subordinated to
the rights of all Noteholders of a Series to
receive distributions to the extent
described in the related Prospectus
Supplement, with respect to the Mortgage
Assets and other assets in the related
Trust. The rights of the holders of
Subordinated Certificates and/or
Subordinated Notes, as the case may be
(collectively, "Subordinated Securities"),
of a Series to receive distributions will be
subordinated to the rights of the holders of
the Senior Certificates and/or Senior Notes,
as the case may be (collectively, "Senior
Securities"), of the same Series to receive
distributions to the extent described in the
related Prospectus Supplement. This
subordination is intended to enhance the
likelihood of regular receipt by holders of
Senior Securities of the full amount of
payments which such holders would be
entitled to receive if there had been no
losses or delinquencies. The protection
afforded to the holders of Senior Securities
through subordination may be accomplished by
the preferential right of such holders to
receive, prior to any distribution being
made in respect of the related Subordinated
Securities the amounts of principal and
interest due to them on each Remittance Date
out of the funds available for distribution
on such date in the related Distribution
Account (as defined herein) to the extent
described in the related Prospectus
Supplement. The protection afforded to the
holders of Senior Securities through
subordination also may be accomplished by
allocating certain types of losses or
delinquencies to the related Subordinated
Securities to the extent described in the
related Prospectus Supplement.
If so specified in the related
Prospectus Supplement, the same Class of
Securities may constitute Senior
Certificates and/or Senior Notes, as the
case may be, with respect to certain types
of payments or certain losses or
delinquencies and Subordinated Certificates
and/or Subordinated Notes, as the case may
be, with respect to other types of payments
or losses or delinquencies. If so specified
in the related Prospectus Supplement,
subordination may apply only in the event of
certain types of losses not covered by other
forms of credit support, such as hazard
losses not covered by Standard Hazard
Insurance Policies or losses due to the
bankruptcy of a Mortgagor not covered by a
Bankruptcy Bond. If further specified in the
related Prospectus Supplement, one or more
reserve accounts (each, a "Reserve Account")
may be established and maintained, in whole
or in part, by the deposit therein of
distributions allocable to the holders of
Subordinated Certificates and/or
Subordinated Notes, as the case may be, for
a specified time or until a specified level
is reached. The related Prospectus
Supplement will set forth information
concerning the amount of subordination of a
Class or Classes of Subordinated
Certificates and/or Subordinated Notes, as
the case may be, in a Series, the
circumstances in which such subordination
will be applicable, the manner, if any, in
which the amount of subordination will
decrease over time, the manner of funding
any Reserve Account, and the conditions
under which amounts in any such Reserve
Account will be used to make distributions
to holders of Senior Certificates and/or
Senior Notes, as the case may be, or
released to holders of Subordinated
Certificates and/or Subordinated Notes, as
the case may be, from the related Trust.
B. Guaranty
Insurance
Policy....................... A certificate or note guaranty
insurance policy (each a "Guaranty Insurance
Policy") may be obtained and maintained for
each Class or Series of Certificates and/or
Notes. Guaranty Insurance Policies generally
unconditionally and irrevocably guarantee
that the full amount of the distributions of
principal and interest, as well as any other
amounts specified in the related Prospectus
Supplement, will be received by an agent of
the Trustee, for distribution by the Trustee
to holders of the covered Securities.
Guaranty Insurance Policies may have certain
limitations set forth in the related
Prospectus Supplement, including (but not
limited to) limitations on the insurer's
obligation to guarantee the Master
Servicer's obligation to repurchase or
substitute for any Mortgage Loans, to
guarantee any specified rate of prepayments
or to provide funds to redeem Securities on
any specified date.
C. Spread
Amount....................... If so specified in the related
Prospectus Supplement, certain Classes of
Certificates and/or Notes may be entitled to
receive limited acceleration of principal
relative to the amortization of the related
Mortgage Assets. The accelerated
amortization will be achieved by applying
certain excess interest collected on the
Mortgage Assets to the payment of principal
on such Classes of Securities. This
acceleration feature is intended to create
an amount (the "Spread Amount"), resulting
from, and generally equal to, the excess of
the aggregate principal balances of the
applicable Mortgage Assets over the
principal balances of the applicable Classes
of Securities. Once the required Spread
Amount is reached, and subject to the
provisions described in the next sentence
and in the related Prospectus Supplement,
the acceleration feature will cease, unless
necessary to maintain the required level of
the Spread Amount. The applicable Agreement
may provide that, subject to certain
floors, caps and triggers, the required
level of the Spread Amount may increase or
decrease over time. An increase would result
in a temporary period of accelerated
amortization of the applicable Classes of
Securities to increase the actual level of
the Spread Amount to its required level; a
decrease would result in a temporary period
of decelerated amortization to reduce the
actual level of the Spread Amount to its
required level. An Agreement also may
provide that after one or more Classes of
Securities have been paid to the required
level of the Spread Amount, excess interest,
together with certain other excess amounts,
may be applied to make-up shortfalls in, or
accelerate the amortization of, other
Classes of Securities.
D. Mortgage Pool
Insurance
Policy...................... A mortgage pool insurance policy
or policies ("Mortgage Pool Insurance
Policy") may be obtained and maintained for
each Series pertaining to Mortgage Loans and
Contracts, limited in scope, covering
defaults on the related Mortgage Loans or
Contracts in an initial amount equal to a
specified percentage of the aggregate
principal balance of all Mortgage Loans or
Contracts included in the Pool as of the
Cut-off Date or such other date as is
specified in the related Prospectus
Supplement.
E. Special Hazard
Insurance
Policy....................... In the case of Mortgage Loans or
Contracts, certain physical risks that are
not otherwise insured against by Standard
Hazard Insurance Policies may be covered by
a special hazard insurance policy or
policies (a "Special Hazard Insurance
Policy"). The level of coverage of each
Special Hazard Insurance Policy will be
specified in the related Prospectus
Supplement.
F. Bankruptcy
Bonds........................ A mortgagor bankruptcy bond or
bonds ("Bankruptcy Bond") may be obtained to
cover certain losses resulting from a
reduction by a bankruptcy court of scheduled
payments of principal or interest on a
Mortgage Loan or Contract or a reduction by
such court of the principal amount of a
Mortgage Loan or Contract, and will cover
certain unpaid interest on the amount of
such a principal reduction. The level of
coverage of each Bankruptcy Bond will be
specified in the related Prospectus
Supplement.
G. Cross
Support..................... If so specified in the
Prospectus Supplement, the ownership
interests of separate Trusts or separate
groups of assets may be evidenced by
separate Classes of the related Series of
Certificates and/or Notes. In such case,
credit support may be provided by a
cross-support feature which requires that
distributions be made with respect to
certain Certificates and/or Notes evidencing
interests in one or more Trusts or asset
groups prior to distributions to other
Certificates and/or Notes evidencing
interests in other asset groups or Trusts.
If specified in the related Prospectus
Supplement, the coverage provided by one or
more forms of credit support may apply
concurrently to two or more separate Trusts,
without priority among such Trusts, until
the credit support is exhausted. If
applicable, the Prospectus Supplement will
identify the Trusts or asset groups to which
such credit support relates and the manner
of determining the amount of the coverage
provided thereby and of the application of
such coverage to the identified Trusts or
asset groups.
H. Supplemental
Interest
Payments.................... If so specified in the
Prospectus Supplement, one or more Classes
of Certificates and/or Notes may be entitled
to receive supplemental interest payments
under specified circumstances. Supplemental
interest payments will be available to fund
some or all of the difference, if any,
between the interest owed to a Class of
Securities on a Remittance Date and the
interest that would be available to pay such
interest assuming no defaults or
delinquencies on the Mortgage Assets. Such
differences may result if the interest rates
on the applicable Classes of Securities are
based upon an index that differs from the
index used in determining the interest rates
on the Mortgage Assets. Except as otherwise
provided in a Prospectus Supplement,
supplemental interest payments will not be
available to fund shortfalls resulting from
delinquencies or defaults on the Mortgage
Assets.
I. Maturity
Protection.................... If so specified in the
Prospectus Supplement, one or more Classes
of Certificates and/or Notes may be entitled
to third-party payments to help provide that
the holders of such Securities receive their
unpaid principal on or prior to a specified
date.
J. The Guaranty.................. If so specified
in the Prospectus Supplement, and in order
to provide additional credit enhancement,
The Money Store may provide a guaranty of
amounts due on certain Classes of
Certificates and/or Notes. The amount and
formula for calculating such guaranty shall
be as set forth in the Prospectus
Supplement.
K. Other Insurance,
Guarantees, Swaps,
and Similar Instruments
or Agreements............... If specified in the related
Prospectus Supplement, a Trust may include
in lieu of some or all of the foregoing or
in addition thereto letters of credit,
financial guaranty insurance policies, other
third party guarantees, limited guarantees
or insurance from agencies or
instrumentalities of the United States, and
other arrangements for maintaining timely
payments or providing additional protection
against losses on the assets included in
such Trust, paying administrative expenses,
or accomplishing such other purpose as may
be described in the Prospectus Supplement.
The Trust may include a guaranteed
investment contract or reinvestment
agreement pursuant to which funds held in
one or more accounts will be invested at a
specified rate.
If any Class of Securities has a
floating interest rate, or if any of the
Mortgage Assets has a floating interest
rate, the Trust may include an interest rate
swap contract, an interest rate cap
agreement or similar hedge contract
providing limited protection against
interest rate risks. If provided in the
related Prospectus Supplement, interest
and/or principal on one or more Classes of
the Securities of a Series may be paid to
Holders thereof in a currency other than
U.S. dollars. If so provided, the Trust may,
in connection therewith, enter into one or
more currency rate swaps to provide limited
protection against foreign currency rate
fluctuation risks. One or more Classes of
Securities also may be issued in conjunction
with a put or call feature entitling (in the
case of a put) or obligating (in the case of
a call) the applicable Securityholders to
sell some or all of its Securities to the
party named in the applicable Prospectus
Supplement on the date or dates set forth
therein. Any such arrangements must be
acceptable to each nationally recognized
rating agency that provides a rating for the
related Series of Securities (the "Rating
Agency"). Additionally, to the extent a
significant portion of the Mortgage Loans
underlying a given Series of Securities
consists of FHA Loans, the related
Prospectus Supplement will describe the
features of any related credit support
including, but not limited to, that provided
by the FHA, if any.
Monthly Advances.................. If so specified in the related Prospectus
Supplement, the Master Servicer will be
required under each Agreement to remit to
the Trustee no later than the day of each
month which is at least three business days
prior to the Remittance Date and is in no
case earlier than the seventh business day
of such month (the "Determination Date") the
amount (a "Monthly Advance"), if any, by
which (a) the sum of (x) 30 days' interest
at the weighted average Adjusted Mortgage
Loan Remittance Rate (as defined herein
under "Description of the Securities--
Monthly Advances and Compensating Interest")
on the then outstanding principal balance of
the related Series of Certificates and/or
Notes and (y) the amount, if any, required
to be deposited into the related Reserve
Account (as specified in the related
Prospectus Supplement) for the related
Remittance Date exceeds (b) the amount
received by the Master Servicer in respect
of interest on the Mortgage Loans as of the
related Record Date. Such advances by the
Master Servicer are reimbursable in the
first instance from late collections of
interest, including amounts received in
connection with the liquidation of defaulted
Mortgage Loans ("Liquidation Proceeds"),
amounts paid by any insurer pursuant to any
insurance policy covering a Mortgage Loan,
Mortgaged Property or REO Property
("Insurance Proceeds"), and proceeds
received by the Master Servicer in
connection with condemnation, eminent domain
or a release of lien ("Released Mortgaged
Property Proceeds") collected with respect
to the related Mortgage Loans as to which
the advances were made, and any other amount
that would otherwise be distributed on the
Class R Certificates. The Master Servicer
will not be required to make any Monthly
Advances which it determines, in good faith,
would be nonrecoverable from amounts
received in respect of the Mortgage Loans.
See "Description of the Securities--Monthly
Advances and Compensating Interest."
Compensating
Interest.......................... If so specified in the related
Prospectus Supplement, with respect to each
Mortgage Loan as to which the Master
Servicer receives a principal payment in
full in advance of the final scheduled due
date (a "Principal Prepayment") or receives
a principal payment that exceeds the
scheduled payment by a specified multiple,
but which was not intended by the Mortgagor
to satisfy the Mortgage Loan in full or to
cure a delinquency (a "Curtailment"), the
Master Servicer will be required to remit to
the Trustee, from amounts otherwise payable
to the Master Servicer as servicing
compensation, an amount ("Compensating
Interest") equal to any excess of (a) 30
days' interest on the principal balance of
each such Mortgage Loan as of the beginning
of the related Due Period at the applicable
weighted average Adjusted Mortgage Loan
Remittance Rate over (b) the amount of
interest actually received on the related
Mortgage Loan during such Due Period.
Optional
Termination....................... The Master Servicer, certain insurers, the
holders of certain classes of Certificates
or Notes, or certain other entities
specified in the related Prospectus
Supplement may have the option to effect
early retirement of a Series of Securities
through the purchase of the related Mortgage
Assets and other assets in the related Trust
under the circumstances and in the manner
described in "The Agreement--Termination;
Purchase of Mortgage Loans."
Mandatory
Termination....................... The Trustee, the Master Servicer
or certain other entities specified in the
related Prospectus Supplement may be
required to effect early retirement of a
Series of Securities under the circumstances
and in the manner specified in the related
Prospectus Supplement and herein under "The
Agreement--Termination; Purchase of Mortgage
Loans."
Trustee .......................... The trustee or trustees under any Agreement
relating to a Series of Securities (each, a
"Trustee") will be specified in the related
Prospectus Supplement. Additionally, any
Co-Trustees, Custodians or Co-Custodians
will be set forth in the related Prospectus
Supplement.
Federal Income Tax
Consequences...................... The federal income tax
consequences of the purchase, ownership and
disposition of the Certificates of each
series will depend on whether an election is
made to treat the corresponding Trust (or
certain assets of the Trust) as a "real
estate mortgage investment conduit"
("REMIC") under the Internal Revenue Code of
1986, as amended (the "Code"), and, if such
election is not made, whether the Trust is
structured and intended to be treated as a
grantor trust, a partnership or otherwise.
REMIC. If an election is to be
made to treat the Trust (or certain assets
of the Trust) for a Series of Certificates
as a REMIC for federal income tax purposes,
the related Prospectus Supplement will
specify which Class or Classes thereof will
be designated as regular interests in the
REMIC ("REMIC Regular Certificates") and
which class of Certificates will be
designated as the residual interest in the
REMIC ("REMIC Residual Certificates"). To
the extent provided herein and in the
related Prospectus Supplement, in the
opinion of Stroock & Stroock & Lavan LLP,
special federal tax counsel ("Federal Tax
Counsel"), Certificates representing an
interest in the REMIC generally will be
considered "real estate assets" for purposes
of Section 856(c)(5)(A) of the Code and
assets described in Section 7701(a)(19)(C)
of the Code, but generally will not be
considered "residential loans" for purposes
of Section 593(g)(4)(B) of the Code.
In the opinion of Federal Tax
Counsel, for federal income tax purposes,
REMIC Regular Certificates generally will be
treated as debt obligations of the Trust
with payment terms equivalent to the terms
of such Certificates. Holders of REMIC
Regular Certificates will be required to
report income with respect to such
Certificates under an accrual method,
regardless of their normal tax accounting
method. Original issue discount, if any, on
REMIC Regular Certificates will be
includible in the income of the Holders
thereof as it accrues, in advance of receipt
of the cash attributable thereto, which rate
of accrual will be determined based on a
reasonable assumed prepayment rate. The
REMIC Residual Certificates generally will
not be treated as evidences of indebtedness
for federal income tax purposes, but
instead, as representing rights to the
taxable income or net loss of the REMIC.
Each holder of a REMIC Residual
Certificate will be required to take into
account separately its pro rata portion of
the REMIC's taxable income or loss. Certain
income of a REMIC (referred to as "excess
inclusions") generally may not be offset by
such a holder's net operating loss
carryovers or other deductions, and in the
case of a tax-exempt holder of a REMIC
Residual Certificate will be treated as
"unrelated business taxable income." In
certain situations, particularly in the
early years of a REMIC, holders of a REMIC
Residual Certificate may have taxable
income, and possibly tax liabilities with
respect to such income, in excess of cash
distributed to them. "DISQUALIFIED
ORGANIZATIONS," AS DEFINED IN "FEDERAL
INCOME TAX CONSEQUENCES-- REMIC RESIDUAL
CERTIFICATES--TAX ON DISPOSITION OF REMIC
RESIDUAL CERTIFICATES; RESTRICTION ON
TRANSFER; HOLDING BY PASS-THROUGH ENTITIES,"
ARE PROHIBITED FROM ACQUIRING OR HOLDING ANY
BENEFICIAL INTEREST IN THE REMIC RESIDUAL
CERTIFICATES.
Grantor Trust. If no election is
to be made to treat the Trust for a series
of Certificates ("Non-REMIC Certificates")
as a REMIC, the Trust may be classified as a
grantor trust for federal income tax
purposes and not as an association taxable
as a corporation or a taxable mortgage pool.
In the opinion of Federal Tax Counsel,
holders of Non-REMIC Certificates will be
treated for such purposes, subject to the
possible application of the stripped bond
rules, as owners of undivided interests in
the related Mortgage Assets, generally will
be required to report as income their pro
rata share of the entire gross income
(including amounts paid as reasonable
servicing compensation) from the Mortgage
Assets, and will be entitled, subject to
certain limitations, to deduct their pro
rata share of expenses of the Trust.
To the extent provided in the related
Prospectus Supplement, Non-REMIC
Certificates generally will represent
interests in "real estate assets" for
purposes of Section 856(c)(5)(A) of the Code
and "Loans . . . principally secured by an
interest in real property" within the
meaning of Section 7701(a)(19)(C)(v) of the
Code, but should not be considered
"residential loans" for purposes of Section
593(g)(4)(B) of the Code.
Partnership. If no election is to be made to
treat the Trust for a Series as a REMIC and
it is so specified in the related Prospectus
Supplement, the Trust will be treated as a
partnership for federal income tax purposes,
and Federal Tax Counsel will deliver its
opinion generally to the effect that the
Trust will not be an association (or
publicly traded partnership) taxable as a
corporation, or a taxable mortgage pool, for
federal income tax purposes. Each
Noteholder, by the acceptance of a Note of
such series, will agree to treat such Note
as indebtedness, and each Certificateholder,
by the acceptance of a Certificate of such
series, will agree to treat the related
Trust as a partnership in which such
Certificateholder is a partner for federal
income and state tax purposes.
Investors are advised to consult their tax
advisors and to review "Federal Income Tax
Consequences" herein and, if applicable, in
the related Prospectus Supplement.
ERISA
Considerations.................... Fiduciaries of employee benefit
plans or other retirement plans or
arrangements, including individual
retirement accounts, certain Keogh plans,
and collective investment funds, separate
accounts and insurance company general
accounts in which such plans, accounts or
arrangements are invested, that are subject
to the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), or the
Code should carefully review with their
legal advisors whether an investment in
Securities will cause the assets of the
related Trust to be considered plan assets
under the Department of Labor ("DOL")
regulations set forth in 29 C.F.R. Section
2510.3-101 (the "Plan Asset Regulations"),
thereby subjecting the Trustee and the
Master Servicer to the fiduciary investment
standards of ERISA, and whether the
purchase, holding or transfer of Securities
gives rise to a transaction that is
prohibited under ERISA or subject to the
excise tax provisions of Section 4975 of the
Code, unless a DOL administrative exemption
applies. See "ERISA Considerations."
Legal
Investment........................ Each Prospectus Supplement will
describe the extent, if any, to which the
Classes of Securities offered thereby will
constitute "mortgage-related securities" for
purposes of the Secondary Mortgage Market
Enhancement Act of 1984 ("SMMEA") and
whether they will be legal investments for
certain types of institutional investors
under SMMEA. See "Legal Investment" herein.
Registration of
Securities........................ Securities may be represented by
global certificates and notes registered in
the name of Cede, as nominee of DTC or
another nominee. In such case,
Securityholders will not be entitled to
receive definitive certificates and/or notes
representing such Holders' interests, except
in certain circumstances described in the
related Prospectus Supplement. See
"Description of the Securities-- Book-Entry
Registration" herein.
<PAGE>
RISK FACTORS
LIMITED LIQUIDITY
There can be no assurance that a secondary market for the Securities
will develop or, if a secondary market does develop, that it will provide
Holders of the Securities with liquidity of investment or that it will continue
for the lives of the Securities.
BOOK-ENTRY REGISTRATION
Issuance of the Certificates and/or Notes in book-entry form may reduce
the liquidity of such Securities in the secondary trading market since investors
may be unwilling to purchase Securities for which they cannot obtain physical
Securities.
Since transactions in Certificates and Notes will, in most cases, be
able to be effected only through DTC, Direct or Indirect Participants and
certain banks, the ability of a Securityholder to pledge a Certificate or Note
to persons or entities that do not participate in the DTC system, or otherwise
to take actions in respect of such Securities, may be limited due to lack of a
physical certificate or note representing such Securities.
Securityholders may experience some delay in their receipt of
distributions of interest on and principal of the Securities since distributions
may be required to be forwarded by the Trustee to DTC and, in such a case, DTC
will be required to credit such distributions to the accounts of its
Participants which thereafter will be required to credit them to the accounts of
the applicable Class of Securityholders either directly or indirectly through
Indirect Participants or such other entities as described in the related
Prospectus Supplement. See "Description of the Securities--Book-Entry
Registration."
NATURE OF SECURITY
Certain of the Mortgage Loans will be loans secured by junior liens
subordinate to the rights of the mortgagee under each related senior mortgage.
As a result, the proceeds from any liquidation, insurance or condemnation
proceedings will be available to satisfy the principal balance of a junior
mortgage loan only to the extent that the claims, if any, of each such senior
mortgagee are satisfied in full, including any related foreclosure costs. In
addition, a mortgagee may not foreclose on the mortgaged property unless it
forecloses subject to any related senior mortgage or mortgages, in which case it
must either pay the entire amount of each senior mortgage to the applicable
mortgagee at or prior to the foreclosure sale or undertake the obligation to
make payments on each senior mortgage in the event of default thereunder. In
servicing mortgage loans in their portfolios, it has been the Originators'
practice to satisfy each such senior mortgage at or prior to the foreclosure
sale only to the extent that they determine any amounts so paid will be
recoverable from future payments and collections on the mortgage loans or
otherwise. The Trusts will not have any source of funds to satisfy any such
senior mortgage or make payments due to any senior mortgagee. See "Certain Legal
Aspects of the Mortgage Loans--Foreclosure/Repossession."
An overall decline in the market value of residential real estate, the
general condition of a Mortgaged Property, or other factors, could adversely
affect the values of the Mortgaged Properties such that the outstanding balances
of the Mortgage Loans which are junior mortgage loans, together with any senior
liens on the Mortgaged Properties, equal or exceed the value of the Mortgaged
Properties. Such a decline could extinguish the interest of the related Trust in
the Mortgaged Property before having any effect on the interest of the related
senior mortgagee. The Representative will not be able to quantify the impact of
any property value declines on the Mortgage Loans or predict whether, to what
extent or how long such declines may continue. In periods of such declines, the
actual rates of delinquencies, foreclosures and losses on the Mortgage Loans
could be higher than those historically experienced in the mortgage lending
industry in general. See "The Single Family Lending Program--Servicing and
Collections."
<PAGE>
Certain of the Mortgage Loans may constitute "Balloon Loans." Balloon
Loans are originated with a stated maturity of less than the period of time of
the corresponding amortization schedule. As a result, upon the maturity of a
Balloon Loan, the Mortgagor will be required to make a "balloon" payment which
will be significantly larger than such Mortgagor's previous monthly payments.
The ability of such a Mortgagor to repay a Balloon Loan at maturity frequently
will depend on such borrower's ability to refinance the Mortgage Loan. The
ability of a Mortgagor to refinance such a Mortgage Loan will be affected by a
number of factors, including the level of available mortgage rates at the time,
the value of the related Mortgaged Property, the Mortgagor's equity in the
related Mortgaged Property, the financial condition of the Mortgagor and the tax
laws and general economic conditions at the time.
Although a low interest rate environment may facilitate the refinancing
of a balloon payment, the receipt and reinvestment by Securityholders of the
proceeds in such an environment may produce a lower return than that previously
received in respect of the related Mortgage Loan. Conversely, a high interest
rate environment may make it more difficult for the Mortgagor to accomplish a
refinancing and may result in delinquencies or defaults. None of the
Representative, the Originators, the Master Servicer or the Trustee will be
obligated to provide funds to refinance any Mortgage Loan.
General economic conditions have an impact on the ability of borrowers
to repay mortgage loans. Loss of earnings, illness and other similar factors may
lead to an increase in delinquencies and bankruptcy filings by borrowers. In the
event of bankruptcy of a Mortgagor, it is possible that a Trust could experience
a loss with respect to such Mortgagor's Mortgage Loan. In conjunction with a
Mortgagor's bankruptcy, a bankruptcy court may suspend or reduce the payments of
principal and interest to be paid with respect to such Mortgage Loan or
permanently reduce the principal balance of such Mortgage Loan, thus either
delaying or permanently limiting the amount received by the Trust with respect
to such Mortgage Loan. Moreover, in the event a bankruptcy court prevents the
transfer of the related Mortgaged Property to a Trust, any remaining balance on
such Mortgage Loan may not be recoverable.
Even assuming that the Mortgaged Properties provide adequate security
for the Mortgage Loans, substantial delays could be encountered in connection
with the liquidation of defaulted Mortgage Loans and corresponding delays in the
receipt of related proceeds by the Securityholders could occur. An action to
foreclose on a Mortgaged Property securing a Mortgage Loan is regulated by state
statutes and rules and is subject to many of the delays and expenses of other
lawsuits if defenses or counterclaims are interposed, sometimes requiring
several years to complete. Furthermore, in some states an action to obtain a
deficiency judgment is not permitted following a nonjudicial sale of a Mortgaged
Property. In the event of a default by a Mortgagor, these restrictions, among
other things, may impede the ability of the Master Servicer to foreclose on or
sell the Mortgaged Property or to obtain Liquidation Proceeds (net of expenses)
sufficient to repay all amounts due on the related Mortgage Loan. The Master
Servicer will be entitled to deduct from Liquidation Proceeds all expenses
reasonably incurred in attempting to recover amounts due on the related
liquidated Mortgage Loan and not yet repaid, including payments to prior
lienholders, legal fees and costs of legal action, real estate taxes, and
maintenance and preservation expenses. In the event that any Mortgaged
Properties fail to provide adequate security for the related Mortgage Loans and
insufficient funds are available from applicable Credit Enhancement,
Certificateholders could experience a loss on their investment.
Liquidation expenses with respect to defaulted mortgage loans do not
vary directly with the outstanding principal balance of the loan at the time of
default. Therefore, assuming that a servicer took the same steps in realizing
upon a defaulted mortgage loan having a small remaining principal balance as it
would in the case of a defaulted mortgage loan having a larger principal
balance, the amount realized after expenses of liquidation would be smaller as a
percentage of the outstanding principal balance of the smaller mortgage loan
than would be the case with a larger loan. Because the average outstanding
principal balances of the Mortgage Loans which are junior mortgage loans are
small relative to the size of the loans in a typical pool composed entirely of
first mortgages, realizations net of liquidation expenses on defaulted Mortgage
Loans which are junior mortgage loans may also be smaller as a percentage of the
principal amount of such junior mortgage loans than would be the case with a
typical pool of first mortgage loans.
<PAGE>
Under environmental legislation and case law applicable in various
states, including California, a secured party that takes a deed in lieu of
foreclosure, acquires a mortgaged property at a foreclosure sale or which, prior
to foreclosure, has been involved in decisions or actions which may lead to
contamination of a property, may be liable for the costs of cleaning up a
contaminated site. Although such costs could be substantial, it is unclear
whether they would be imposed on a holder of a mortgage note (such as a Trust)
which, under the terms of the Agreement, is not required to take an active role
in operating the Mortgaged Properties. See "Certain Legal Aspects of the
Mortgage Loans--Environmental Considerations."
Certain of the Mortgaged Properties relating to Mortgage Loans may not
be owner occupied. It is possible that the rate of delinquencies, foreclosures
and losses on Mortgage Loans secured by non-owner occupied properties could be
higher than for loans secured by the primary residence of the borrower.
UNSECURED HOME IMPROVEMENT LOANS
The obligations of the borrower under any Unsecured Home Improvement
Loan included in a Pool will not be secured by an interest in the related real
estate or otherwise, and the related Trust Fund, as the owner of such Unsecured
Home Improvement Loan, will be a general unsecured creditor as to such
obligations. As a consequence, in the event of a default under an Unsecured Home
Improvement Loan, the related Trust Fund will have recourse only against the
borrower's assets generally, along with all other general unsecured creditors of
the borrower. In a bankruptcy or insolvency proceeding relating to a borrower on
an Unsecured Home Improvement Loan, the obligations of the borrower under such
Unsecured Home Improvement Loan may be discharged in their entirety,
notwithstanding the fact that the portion of such borrower's assets made
available to the related Trust Fund as a general unsecured creditor to pay
amounts due and owing thereunder are insufficient to pay all such amounts. A
borrower on an Unsecured Home Improvement Loan may not demonstrate the same
degree of concern over performance of the borrower's obligations under such Home
Improvement Loan as if such obligations were secured by the real estate or other
assets owned by such borrower.
PRE-FUNDING ACCOUNTS
If a Trust Fund includes a Pre-Funding Account and the principal
balance of additional Mortgage Loans delivered to the Trust Fund during the
Pre-Funding Period is less than the original Pre-Funded Amount, the Holders of
the Securities of the related Series will receive a prepayment of principal as
and to the extent described in the related Prospectus Supplement. Any such
principal prepayment may adversely affect the yield to maturity of the
applicable Securities.
The ability of a Trust Fund to obtain subsequent Mortgage Loans during
the related Pre-Funding Period will be dependent on the ability of the
Originators to originate or acquire Mortgage Loans that satisfy the requirements
for transfer to the Trust Fund. The ability of the Originators to originate or
acquire such Mortgage Loans will be affected by a variety of social and economic
factors, including the prevailing level of market interest rates, unemployment
levels and consumer perception of general economic conditions.
COMBINED LOAN-TO-VALUE RATIOS
The Originators' underwriting standards allow loans to be approved with
Combined Loan-to-Value Ratios (as defined below) that exceed 100%. Because the
original Combined Loan-to-Value Ratios of certain of the Mortgage Loans may be
high relative to that of other similar mortgage loans, recoveries on defaulted
Mortgage Loans may be lower than the level of recoveries experienced by such
other defaulted mortgage loans.
<PAGE>
LEGAL CONSIDERATIONS
Applicable state laws generally regulate interest rates and other
charges, require certain disclosures, and require licensing of the Originators
and the Master Servicer. In addition, most states have other laws, public policy
and general principles of equity relating to the protection of consumers, unfair
and deceptive practices and practices which may apply to the origination,
servicing and collection of the Mortgage Loans. Depending on the provisions of
the applicable law and the specific facts and circumstances involved, violations
of these laws, policies and principles may limit the ability of the Master
Servicer to collect all or part of the principal of or interest on the Mortgage
Loans, may entitle the borrower to a refund of amounts previously paid and, in
addition, could subject the Master Servicer to damages and administrative
sanctions. See "Certain Legal Aspects of the Mortgage Loans."
The Mortgage Loans may also be subject to federal laws, including: (i)
the Federal Truth in Lending Act and Regulation Z promulgated thereunder, which
require certain disclosures to the borrowers regarding the terms of the Mortgage
Loans; (ii) the Equal Credit Opportunity Act and Regulation B promulgated
thereunder, which prohibit discrimination on the basis of age, race, color, sex,
religion, marital status, national origin, receipt of public assistance or the
exercise of any right under the Consumer Credit Protection Act, in the extension
of credit; (iii) the Fair Credit Reporting Act, which regulates the use and
reporting of information related to the borrower's credit experience; and (iv)
the NHA Act (as defined herein) with respect to FHA Loans.
The Mortgage Loans may be subject to the Home Ownership and Equity
Protection Act of 1994 (the "Home Ownership Act") which amended the Federal
Truth in Lending Act as it applies to mortgages subject to the Home Ownership
Act. The Home Ownership Act requires certain additional disclosures, specifies
the timing of such disclosures and limits or prohibits the inclusion of certain
provisions in mortgages subject to the Home Ownership Act. The Home Ownership
Act also provides that any purchaser or assignee of a mortgage covered by the
Home Ownership Act is subject to all of the claims and defenses which the
borrower could assert against the original lender. The maximum damages that may
be recovered in an action under the Home Ownership Act from an assignee is the
remaining amount of indebtedness plus the total amount paid by the borrower in
connection with the mortgage loan. Any Trust for which the Mortgage Assets
include Mortgage Loans subject to the Home Ownership Act would be subject to all
of the claims and defenses which the borrower could assert against the original
lender. Any violation of the Home Ownership Act which would result in such
liability would be a breach of the applicable Originator's representations and
warranties, and the Representative would be obligated to cure, repurchase or, if
permitted by the related Agreement, substitute for the Mortgage Loan in
question.
PREPAYMENT CONSIDERATIONS
Unless otherwise specified in the related Prospectus Supplement, the
Mortgage Loans may be prepaid in full or in part at any time; however, a
prepayment penalty or premium may still be imposed in connection therewith. The
rate of prepayments of the Mortgage Loans cannot be predicted and may be
affected by a wide variety of economic, social, and other factors, including
prevailing interest rates, the availability of alternative financing and
homeowner mobility. Therefore, no assurance can be given as to the level of
prepayments that a Trust will experience.
A number of factors suggest that the prepayment behavior of a pool
including junior mortgage loans may be significantly different from that of a
pool composed entirely of first mortgage loans with equivalent interest rates
and maturities. One such factor is the smaller average principal balance of a
pool of junior mortgage loans which may result in a higher prepayment rate than
that of a pool of first mortgage loans with a larger average balance, regardless
of the interest rate environment. A small principal balance, however, also may
make refinancing a junior mortgage loan at a lower interest rate less attractive
to the borrower relative to refinancing a larger balance first mortgage loan, as
the perceived impact to the borrower of lower interest rates on the size of the
monthly payment for a junior mortgage loan may be less than for a first mortgage
loan with a larger balance. Other factors that might be expected to affect the
prepayment rate of a pool of junior mortgage loans include the amounts of, and
interest rates on, the underlying senior mortgage loans, and the use of first
mortgage loans as long-term financing for home purchase and junior mortgage
loans as shorter-term financing for a variety of purposes, including home
improvement, education expenses and purchases of consumer durables such as
automobiles. Accordingly, the Mortgage Loans which are junior mortgage loans may
experience a higher rate of prepayment than traditional fixed-rate mortgage
loans. In addition, any future limitations on the right of borrowers to deduct
interest payments on home equity mortgage loans for federal income tax purposes
may further increase the rate of prepayments of such junior mortgage loans. See
"Maturity, Prepayment and Yield Considerations."
Prepayments may result from voluntary early payments by borrowers
(including payments in connection with refinancings of the related senior
mortgage loan or loans), sales of Mortgaged Properties subject to "due-on-sale"
provisions and liquidations due to default, as well as the receipt of proceeds
from physical damage, credit life and disability insurance policies and, if so
specified in the related Prospectus Supplement, amounts on deposit in the Pre-
Funding Account at the end of the Funding Period being applied to the payment of
principal of the Securities. In addition, repurchases or purchases from a Trust
of Mortgage Loans required to be made by the Representative under the Agreement
will have the same effect on the affected Securityholders as a prepayment of
such Mortgage Loans. Unless otherwise specified in the related Prospectus
Supplement, all of the secured Mortgage Loans contain "due-on-sale" provisions,
and the Master Servicer will be required to enforce such provisions unless (i)
such enforcement would materially increase the risk of default or delinquency
on, or materially decrease the security for, such Mortgage Loan or (ii) such
enforcement is not permitted by applicable law, in which case the Master
Servicer is authorized to permit the purchaser of the related Mortgaged Property
to assume the Mortgage Loan. See "The Agreement" in the related Prospectus
Supplement.
Collections on the Mortgage Loans may vary due to the level of
incidence of delinquent payments and of prepayments. Collections on the Mortgage
Loans may also vary due to seasonal purchasing and payment habits of borrowers.
Certain of the Mortgage Loans may be "simple interest" or
"date-of-payment loans." If a payment is received on such a Mortgage Loan later
than scheduled, a smaller portion of such payment will be applied to principal
and a greater portion will be applied to interest than would have been the case
had the payment been received on the scheduled due date, resulting in such
Mortgage Loan having a longer average life than would have been the case had the
payment been made as scheduled. Conversely, if a payment on such a Mortgage Loan
is received earlier than scheduled, more of such payment will be applied to
principal and less to interest than would have been the case had the payment
been received on its scheduled due date, resulting in such Mortgage Loan having
a shorter average life than would have been the case had the payment been made
as scheduled.
THE STATUS OF THE MORTGAGE LOANS IN THE EVENT OF
BANKRUPTCY OF THE REPRESENTATIVE OR AN ORIGINATOR
In the event of the bankruptcy of the Representative or an Originator
at a time when it or any affiliate thereof holds a subordinated interest in a
Trust Fund, a trustee in bankruptcy of the Representative or its creditors could
attempt to recharacterize the sale of the Mortgage Loans to the related Trust as
a borrowing by the Representative, the Originator or such affiliate with the
result, if such recharacterization is upheld, that the Securityholders would be
deemed to be creditors of the Representative, the Originator or such affiliate,
secured by a pledge of the Mortgage Loans. If such an attempt were successful, a
trustee in bankruptcy could elect to accelerate payment of the Securities and
liquidate the Mortgage Loans, with the Securityholders entitled to the then
outstanding principal amount thereof together with accrued interest. Thus, the
Securityholders could lose the right to future payments of interest, and might
suffer reinvestment loss in a lower interest rate environment.
LIMITATIONS ON INTEREST PAYMENTS AND FORECLOSURES
Generally, under the terms of the Soldiers' and Sailors' Civil Relief
Act of 1940, as amended (the "Relief Act"), or similar state legislation, a
Mortgagor who enters military service after the origination of the related
Mortgage Loan (including a Mortgagor who is a member of the National Guard or is
in reserve status at the time of the origination of the Mortgage Loan and is
later called to active duty) may not be charged interest (including fees and
charges) above an annual rate of 6% during the period of such Mortgagor's active
duty status, unless a court orders otherwise upon application of the lender. It
is possible that such action could have an effect, for an indeterminate period
of time, on the ability of the Master Servicer to collect full amounts of
interest on certain of the Mortgage Loans. In addition, the Relief Act imposes
limitations which would impair the ability of the Master Servicer to foreclose
on an affected Mortgage Loan during the Mortgagor's period of active duty
status. Thus, in the event that such a Mortgage Loan goes into default, there
may be delays and losses occasioned by the inability to realize upon the
Mortgaged Property in a timely fashion.
SECURITY RATING
If set forth in the related Prospectus Supplement, the rating of one
or more Classes of Securities may depend, to a large extent, on the
creditworthiness of a third party provider of credit enhancement. In such event,
any reduction in the rating assigned to the claims-paying ability of such
provider below the rating initially given to such Class of Securities would
likely result in a reduction in the rating of such Class of Securities. See
"Rating."
OTHER
To the extent a significant portion of the Mortgage Loans underlying a
given series of Securities consists of FHA Loans and/or Secured Conventional
Home Improvement Loans, the related Prospectus Supplement will describe any
additional Risk Factors related to such Mortgage Loans.
THE TRUSTS
A Trust for any Series of Securities will include the Mortgage Assets
consisting of (A) one or more Pools* comprised of (i) Single Family Loans, (ii)
Cooperative Loans, (iii) Multifamily Loans, (iv) Contracts, (v) FHA Loans, (vi)
Secured Conventional Home Improvement Loans, (vii) Unsecured Home Improvement
Loans, or (B) Agency Securities or Private Mortgage-Backed Securities, in each
case, as specified in the related Prospectus Supplement, together with payments
in respect of such Mortgage Assets and certain other accounts, obligations or
agreements, in each case as specified in the related Prospectus Supplement. The
Mortgage Loans may be closed-end or revolving as described in the related
Prospectus Supplement.
The Notes of each Series will be secured by the pledge of the assets of
the related Trust, and the Certificates of each Series will represent interest
in the assets of the related Trust. The Securities will be entitled to payment
only from the assets of the related Trust and, to the extent specified in a
Prospectus Supplement, payments in respect of the assets of other trusts
established by the Representative, the Originators or any of their affiliates.
If specified in the related Prospectus Supplement, certain Securities will
evidence the entire fractional undivided ownership interest in a Trust which
will contain a beneficial ownership interest in another Trust which will contain
all or some of the Mortgage Assets.
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* Whenever the terms "Pool," "Certificates," "Notes," and "Securities"
are used in this Prospectus, such terms will be deemed to apply, unless
the context indicates otherwise, to one specific Pool, the Certificates
representing certain undivided fractional interests, as described
below, in a single Trust consisting primarily of the Mortgage Loans in
such Pool, and the Notes shall refer to debt obligations of such Trust
secured by the related Pool of Mortgage Loans. Similarly, the term
"Pass-Through Rate" will refer to the Pass-Through Rate borne by the
Certificates of one specific Series, the terms "Interest Rate will
refer to the Interest Rate borne by the Notes of one specific Series
and the term "Trust" will refer to one specific Trust.
<PAGE>
Certain of the Mortgage Assets may have been originated by the
Originators. Other Mortgage Assets may have been acquired by the Representative,
an Originator or an affiliate thereof in the open market or in privately
negotiated transactions, including transactions with entities affiliated with
the Representative. See "Mortgage Loan Program--Underwriting Criteria."
The following is a brief description of the Mortgage Assets expected to
be included in the Trusts. If specific information respecting the Mortgage
Assets is not known at the time the related Series of Securities initially is
offered, more general information of the nature described below will be provided
in the Prospectus Supplement, and specific information will be set forth in a
report on Form 8-K to be filed with the Commission within fifteen days after the
initial issuance of such Securities (the "Detailed Description"). A copy of the
Agreement with respect to each Series of Securities will be attached to the Form
8-K and will be available for inspection at the corporate trust office of the
Trustee specified in the related Prospectus Supplement. A schedule of the
Mortgage Assets relating to such Series (the "Mortgage Asset Schedule") will be
attached to the Agreement delivered to the Trustee upon delivery of the
Securities.
THE MORTGAGE LOANS--GENERAL
The real property and Manufactured Homes, as the case may be, which
secure repayment of the Mortgage Loans and Contracts (the "Mortgaged
Properties") may be located in any one of the fifty states, the District of
Columbia, the Commonwealth of Puerto Rico or any other commonwealth, territory
or possession of the United States. It is expected that the Mortgage Loans or
Contracts will be Conventional Loans (i.e., loans that are not insured or
guaranteed by any governmental agency). However, if specified in the related
Prospectus Supplement, certain of the Single Family Loans may be insured by the
FHA or partially guaranteed by the VA. Mortgage Loans with Combined
Loan-to-Value Ratios and/or certain principal balances may be covered wholly or
partially by Primary Mortgage Insurance Policies. The Mortgage Loans may be
covered by Standard Hazard Insurance Policies.
All of the Mortgage Loans in a Pool will provide for payments to be
made monthly ("monthly pay"), bi-weekly or on such other terms as may be
described in a Prospectus Supplement. The payment terms of the Mortgage Loans to
be included in a Trust will be described in the related Prospectus Supplement
and may include any of the following features or combinations thereof or other
features described in the related Prospectus Supplement:
(a) Interest may be payable at a Fixed Rate, or an Adjustable
Rate (i.e., a rate that is adjustable from time to time in relation to
an index, a rate that is fixed for a period of time or under certain
circumstances and is followed by an adjustable rate, a rate that
otherwise varies from time to time, or a rate that is convertible from
an adjustable rate to a fixed rate). The specified rate of interest on
a Mortgage Loan is its Mortgage Interest Rate. Changes to an Adjustable
Rate may be subject to periodic limitations, maximum rates, minimum
rates or a combination of such limitations. Accrued interest may be
deferred and added to the principal of a Mortgage Loan for such periods
and under such circumstances as may be specified in the related
Prospectus Supplement. Mortgage Loans may provide for the payment of
interest at a rate lower than the Mortgage Interest Rate for a period
of time or for the life of the Mortgage Loan, and the amount of any
difference may be contributed from funds supplied by the seller of the
Mortgaged Property securing the related Mortgage Loan or another source
or may be treated as accrued interest added to the principal of the
Mortgage Loan.
(b) Principal may be payable on a level basis to fully
amortize the Mortgage Loan over its term, may be calculated on the
basis of an assumed amortization schedule that is significantly longer
than the original term to maturity or on an interest rate that is
different from the Mortgage Interest Rate, or may not be amortized
during all or a portion of the original term. Payment of all or a
substantial portion of the principal may be due on maturity ("balloon"
payments). Principal may include interest that has been deferred and
added to the principal balance of the Mortgage Loan.
(c) Monthly payments of principal and interest may be fixed
for the life of the Mortgage Loan, may increase over a specified period
of time ("graduated payments") or may change from period to period.
Mortgage Loans may include limits on periodic increases or decreases in
the amount of monthly payments and may include maximum or minimum
amounts of monthly payments. Mortgage Loans may require the monthly
payments of principal and interest to increase for a specified period,
provide for deferred payment of some or all of the payments due during
a specified period, which may be recouped as deferred interest through
negative amortization or otherwise. Other Mortgage Loans sometimes
referred to as "growing equity" mortgage loans may provide for periodic
scheduled payment increases for a specified period with the full amount
of such increases being applied to principal.
(d) Prepayments of principal may be subject to a prepayment
fee, which may be fixed for the life of the Mortgage Loan or may
decline over time, and may be prohibited for the life of the Mortgage
Loan or for certain periods ("lockout periods"). Certain Mortgage Loans
may permit prepayments after expiration of the applicable lockout
period and may require the payment of a prepayment fee in connection
with any such subsequent prepayment. Other Mortgage Loans may permit
prepayments without payment of a fee unless the prepayment occurs
during specified time periods. The Mortgage Loans may include
due-on-sale clauses which permit the mortgagee to demand payment of the
entire Mortgage Loan in connection with the sale or certain transfers
of the related Mortgaged Property. Other Mortgage Loans may be
assumable by persons meeting the then applicable underwriting standards
of the Originator.
To the extent a significant portion of the Mortgage Loans underlying a
given Series of Securities consist of FHA Loans and/or Secured Conventional Home
Improvement Loans, the related Prospectus Supplement will describe the material
provisions of such Mortgage Loans and the programs under which they were
originated. The Prospectus Supplement for each Series of Securities will contain
information with respect to all the Mortgage Loans expected to be included in
the related Pools as of the related closing date, including (i) the expected
aggregate outstanding principal balance and the expected average outstanding
principal balance of the Mortgage Loans as of the date set forth in the
Prospectus Supplement, (ii) the largest expected principal balance and the
smallest expected, principal balance of any of the Mortgage Loans, (iii) the
types of Mortgaged Properties and/or other assets securing the Mortgage Loans
(e.g., one- to four-family houses, vacation and second homes, Manufactured
Homes, multifamily apartments or other real property) and the percentage, if
any, of Unsecured Home Improvement Loans expected to be included in the related
Pool, (iv) the original terms to maturity of the Mortgage Loans, (v) the
expected weighted average term to maturity of the Mortgage Loans as of the date
set forth in the Prospectus Supplement and the expected range of the terms to
maturity, (vi) the earliest origination date and latest maturity date of any of
the Mortgage Loans, (vii) the expected weighted average Combined Loan-to-Value
Ratios at origination (except with respect to home improvement loans), (viii)
the expected Mortgage Interest Rate or APR and ranges of Mortgage Interest Rates
or APRs borne by the Mortgage Loans, (ix) in the case of Mortgage Loans having
Adjustable Rates, the expected weighted average of the Adjustable Rates, if any,
(x) the expected aggregate outstanding principal balance, if any, of Buy-Down
Loans and Mortgage Loans having graduated payment provisions as of the date set
forth in the Prospectus Supplement, (xi) the amount of any Mortgage Pool
Insurance Policy, Special Hazard Insurance Policy or Bankruptcy Bond to be
maintained with respect to such Pool, (xii) the amount, if any, and terms of any
other credit enhancement or other derivative instruments to be provided with
respect to all or a material portion of the Mortgage Loans or the Pool and
(xiii) the expected geographic location of the Mortgaged Properties. If specific
information respecting the Mortgage Loans is not known to the Representative at
the time the related Securities are initially offered, more general information
of the nature described above will be provided in the Prospectus Supplement and
specific information will be set forth in the Detailed Description.
The Combined "Loan-to-Value Ratio" of a Single Family Loan at any
given time is the ratio, expressed as a percentage, determined by dividing (x)
the sum of the original principal balance of the Single Family Loan (less the
amount, if any, of the premium for credit life insurance) plus the then-current
principal balance of the related first lien, if any, by (y) the value of the
related Mortgaged Property, based upon the appraisal or valuation made at the
time of origination of the Single Family Loan. To the extent a significant
portion of the Mortgage Loans underlying a given Series of Securities consists
of FHA loans and/or Secured Conventional Home Improvement Loans, the related
Prospectus Supplement may describe the method for calculating the Combined
Loan-to-Value Ratio, if deemed relevant by the Representative. In the case of
Refinance Loans, the value of the related Mortgaged Property generally will be
based on an appraisal or valuation obtained at the time of refinancing. For
purposes of calculating the Combined Loan-to-Value Ratio of a Contract relating
to a new Manufactured Home, the value of such Manufactured Home generally will
be no greater than the sum of a fixed percentage of the list price of the unit
actually billed by the manufacturer to the dealer (exclusive of freight to the
dealer site) including "accessories" identified in the invoice (the
"Manufacturer's Invoice Price"), plus the actual cost of any accessories
purchased from the dealer, a delivery and set-up allowance, depending on the
size of the unit, and the cost of state and local taxes, filing fees and up to
three years prepaid hazard insurance premiums. The value of a used Manufactured
Home generally will be the least of the sales price, appraised value, and, if
applicable, National Automobile Dealer's Association book value plus prepaid
taxes and hazard insurance premiums. The appraised value of a Manufactured Home
will be based upon the age and condition of the manufactured housing unit and
the quality and condition of the mobile home park in which it is situated, if
applicable.
The Mortgage Loans in any Trust may include Mortgage Loans whose
Combined Loan to Value Ratios exceed 100%. The related Mortgaged Properties are
unlikely to provide adequate security for such Mortgage Loans. Even assuming
that a Mortgaged Property provides adequate security for the related Mortgage
Loan, substantial delays could be encountered in connection with the liquidation
of a Mortgage Loan that would result in current shortfalls in payments to
Securityholders to the extent such shortfalls are not covered by any credit
enhancement as described in the related Prospectus Supplement. In addition,
liquidation expenses relating to any liquidated Mortgage Loan (such as legal
fees, real estate taxes, and maintenance and preservation expenses) will reduce
the liquidation proceeds otherwise available for payment to Securityholders. In
the event that any Mortgaged Property fails to provide adequate security for the
related Mortgage Loan, any losses in connection with such Mortgage Loan will be
borne by Securityholders as described in the related Prospectus Supplement to
the extent that the applicable credit enhancement described in the related
Prospectus Supplement is insufficient to absorb all such losses.
No assurance can be given that values of the Mortgaged Properties have
remained or will remain at their levels on the dates of origination of the
related Mortgage Loans. If the real estate market should experience an overall
decline in property values such that the outstanding principal balances of the
Mortgage Loans (plus any additional financing by other lenders on the same
Mortgaged Properties), in a particular Pool become equal to or greater than the
value of such Mortgaged Properties, the actual rates of delinquencies,
foreclosures and losses could be higher than those now generally experienced in
the mortgage lending industry. An overall decline in the market value of real
estate, the general condition of a Mortgaged Property, or other factors, could
adversely affect the values of the Mortgaged Properties such that the
outstanding balances of the Mortgage Loans, together with any additional liens
on the Mortgaged Properties, equal or exceed the value of the Mortgaged
Properties. Under such circumstances, the actual rates of delinquencies,
foreclosures and losses could be higher than those now generally experienced in
the mortgage lending industry.
Certain of the residential mortgage loans to be included in a Trust
are expected to be residential mortgage loans secured by second, third or fourth
liens ("Home Equity Loans") subordinate to the rights of the mortgagee under
each related senior mortgage. The proceeds from any liquidation, insurance or
condemnation of Mortgaged Properties relating to Home Equity Loans in a Pool
will be available to satisfy the principal balance of such Home Equity Loans
only to the extent that the claims, if any, of the related senior mortgagee,
including any related foreclosure costs, are satisfied in full. In addition, the
Master Servicer may not foreclose on a Mortgaged Property relating to a Home
Equity Loan unless it forecloses subject to the related senior mortgage or
mortgages, in which case it must either pay the entire amount of each senior
mortgage to the applicable mortgagee at or prior to the foreclosure sale or
undertake the obligation to make payments on each senior mortgage in the event
of default thereunder. Generally, in servicing Home Equity Loans in their loan
portfolios, it has been the Originators' practice to satisfy each senior
mortgage at or prior to a foreclosure sale only to the extent that they
determine any amounts so paid will be recoverable from future payments and
collections on the Home Equity Loans or otherwise. The Trusts will not have any
source of funds to satisfy any such senior mortgage or make payments due to any
senior mortgagee. See "Certain Legal Aspects of the Mortgage Loans--
Foreclosure/Repossession."
In addition, general economic conditions and other factors (which may
or may not effect real property values) have an impact on the ability of
mortgagors to repay mortgage loans. Loss of earnings, illness and other similar
factors may lead to an increase in delinquencies and bankruptcy filings by
mortgagors. In the event of bankruptcy of a mortgagor, it is possible that a
Trust could experience a loss with respect to the related Mortgage Loan. In
conjunction with a mortgagor's bankruptcy, a bankruptcy court may suspend or
reduce the payments of principal and interest to be paid with respect to such
Mortgage Loan or permanently reduce the principal balance of such Mortgage Loan,
thus either delaying or permanently limiting the amount received by such Trust
with respect thereto. Moreover, in the event a bankruptcy court prevents the
transfer of the related Mortgaged Property to the Trust, any remaining balance
on such Mortgage Loan may not be recoverable.
Other factors affecting mortgagors' ability to repay Mortgage Loans
include excessive building resulting in an oversupply of housing stock or a
decrease in employment reducing the demand for units in an area; federal, state
or local regulations and controls affecting rents; prices of goods and energy;
environmental restrictions; increasing labor and material costs; and the
relative attractiveness of the Mortgaged Properties. To the extent that such
losses are not covered by credit enhancements, such losses will be borne, at
least in part, by the Securityholders of the related Series.
The Representative will cause the Mortgage Loans comprising each Pool
to be assigned to the Trustee named in the related Prospectus Supplement for the
benefit of the holders of the Securities of the related Series. One or more
Master Servicers named in the related Prospectus Supplement will service the
Mortgage Loans, either directly or through Sub-Servicers, pursuant to the
Agreement and will receive a fee for such services. See "Mortgage Loan Program"
and "The Agreement." With respect to Mortgage Loans serviced through a
Sub-Servicer, the Master Servicer will remain liable for its servicing
obligations under the related Agreement as if the Master Servicer alone were
servicing such Mortgage Loans.
The only obligations of the Representative or the Originators with
respect to a Series of Securities will be to provide (or, where the
Representative or an Originator acquired a Mortgage Loan from another
originator, obtain from such originator) certain representations and warranties
concerning the Mortgage Loans and to assign to the Trustee for such Series of
Securities the Representative's or Originator's rights with respect to such
representations and warranties. See "The Agreements--Sale of Mortgage Loans."
The obligations of the Master Servicer with respect to the Mortgage Loans will
consist principally of its contractual servicing obligations under the related
Agreement and its obligation to make certain cash advances in the event of
delinquencies in payments on or with respect to the Mortgage Loans in the
amounts described herein under "Description of the Securities--Advances." The
obligations of a Master Servicer to make advances may be subject to limitations,
to the extent provided herein and in the related Prospectus Supplement.
If provided in the related Prospectus Supplement, the original
principal amount of a Series of Securities may exceed the principal balance of
the Mortgage Assets initially being delivered to the Trustee. Cash in an amount
equal to such difference (the "Pre-Funded Amount") will be deposited into a
separate trust account (the "Pre-Funding Account") maintained with the Trustee.
During the period set forth in the related Prospectus Supplement (the "Funding
Period"), amounts on deposit in the Pre-Funding Account may be used to purchase
additional Mortgage Assets for the related Trust subject to the satisfaction of
certain conditions specified under the Agreements. Any amounts remaining in the
Pre-Funding Account at the end of such period will be distributed as a principal
prepayment to the holders of the related Series of Securities at the time and in
the manner set forth in the related Prospectus Supplement.
SINGLE FAMILY AND COOPERATIVE LOANS
Single Family Loans will consist of mortgage loans, deeds of trust or
participation or other beneficial interests therein, secured by first, second or
more junior liens on one- to four-family residential properties. If so specified
in a Prospectus Supplement, the Single Family Loans may include loans or
participations therein secured by mortgages or deeds of trust on condominium
units in low-rise condominium buildings together with such condominium units'
appurtenant interests in the common elements of the condominium buildings.
Cooperative Loans generally will be secured by security interests in or similar
liens on stock, shares or membership certificates issued by Cooperatives and in
the related proprietary leases or occupancy agreements granting exclusive rights
to occupy specific dwelling units in such Cooperatives' buildings.
The Mortgaged Properties relating to Single Family Loans will consist
of detached or semi-detached one-family dwelling units, two- to four-family
dwelling units, townhouses, rowhouses, individual condominium units in low-rise
condominium buildings, individual units in planned unit developments, and
certain mixed use and other dwelling units. Such Mortgaged Properties may
include vacation and second homes or investment properties. A portion of a
dwelling unit may contain a commercial enterprise.
MULTIFAMILY LOANS
"Multifamily Loans" will consist of mortgage loans, deeds of trust or
participation or other beneficial interests therein, secured by first, second or
more junior liens on rental apartment buildings, mixed-use properties or
projects containing five or more residential units.
Mortgaged Properties which secure Multifamily Loans may include
high-rise, mid-rise and garden apartments. Certain of the Multifamily Loans may
be secured by apartment buildings owned by Cooperatives. In such cases, the
Cooperative owns all the apartment units in the building and all common areas.
The Cooperative is owned by tenant-stockholders who, through ownership of stock,
shares or membership certificates in the corporation, receive proprietary leases
or occupancy agreements which confer exclusive rights to occupy specific
apartments or units. Generally, a tenant-stockholder of a Cooperative must make
a monthly payment to the Cooperative representing such tenant-stockholder's pro
rata share of the Cooperative's payments for its mortgage loans, real property
taxes, maintenance expenses and other capital or ordinary expenses. Those
payments are in addition to any payments of principal and interest the
tenant-stockholder must make on any loans to the tenant-stockholder secured by
its shares in the Cooperative. The Cooperative will be directly responsible for
building management and, in most cases, payment of real estate taxes and hazard
and liability insurance. A Cooperative's ability to meet debt service
obligations on a Multifamily Loan, as well as all other operating expenses, will
be dependent in large part on the receipt of maintenance payments from the
tenant-stockholders, as well as any rental income from units or commercial areas
the Cooperative might control. Unanticipated expenditures may in some cases have
to be paid by special assessments on the tenant-stockholders.
Substantially all of the Multifamily Loans will be secured by mixed-use
properties, with no less than approximately 90% of such properties, measured by
square footage, number of units and projected rent, being allocated to
residential units.
CONTRACTS
Contracts will consist of manufactured housing conditional sales
contracts and installment sales or loan agreements each secured by a
Manufactured Home. Contracts may be conventional, insured by the Federal Housing
Administration ("FHA") or partially guaranteed by the Veterans Administration
("VA"), as specified in the related Prospectus Supplement. Unless otherwise
specified in the related Prospectus Supplement, each Contract will be fully
amortizing and will bear interest at its APR.
The "Manufactured Homes" securing the Contracts will consist of
manufactured homes within the meaning of 42 United States Code, Section 5402(6),
which defines a "manufactured home" as "a structure, transportable in one or
more sections, which, in the traveling mode, is eight body feet or more in width
or forty body feet or more in length, or, when erected on site, is three hundred
twenty or more square feet, and which is built on a permanent chassis and
designed to be used as a dwelling with or without a permanent foundation when
connected to the required utilities, and includes the plumbing, heating, air
conditioning, and electrical systems contained therein; except that such term
shall include any structure which meets all the requirements of [this] paragraph
except the size requirements and with respect to which the manufacturer
voluntarily files a certification required by the Secretary of Housing and Urban
Development and complies with the standards established under [this] chapter."
The related Prospectus Supplement will specify for the Contracts
contained in the related Trust, among other things, the date of origination of
the Contracts; the APRs on the Contracts; the Contract loan-to-value ratios; the
minimum and maximum outstanding principal balances as of the Cut-off Date and
the average outstanding principal balance; the outstanding principal balances of
the Contracts included in the related Trust; and the original maturities of the
Contracts and the last maturity date of any Contract.
FHA LOANS
The FHA Loans will consist of home improvement loans originated under
Title I (the "Title I Loan Program") of the National Housing Act of 1934 (the
"NHA Act"). Under the NHA Act, the Federal Housing Administration (the "FHA"),
an agency of the United States Department of Housing and Urban Development
("HUD"), is authorized and empowered to insure qualified lending institutions
against losses on eligible loans. Several types of loans may be made under the
Title I Loan Program, including (1) property improvement loans; (2) manufactured
home purchase loans; (3) manufactured home lot loans; and (4) combination loans
(to purchase a manufactured home and a lot). Property improvement loans (the
"Title I Property Improvement Loans") may be made by approved lenders to finance
alterations, repair or improvement of existing single family, multifamily,
manufactured housing and nonresidential structures.
Title I Property Improvement Loans, in addition to improvements to
protect the livability or utility of single family, multifamily or manufactured
housing or nonresidential property, also include loans for the renovation or
preservation of historic residential structures and loans to finance the
installation of fire safety equipment in existing health care facilities. Loan
processing and credit determinations are done by an approved financial
institution. Each lender is required to use prudent lending standards in
underwriting individual loans.
Under the Title I Loan Program, the FHA does not review individual
loans at the time of approval (as is typically the case with some other federal
loan programs), except when the amount of a Title I Property Improvement Loan
would result in any borrower having a total unpaid principal obligation on such
loans in excess of certain specified amounts, in which case HUD approval must be
obtained.
The Title I Loan Program is a coinsurance program. The lender initially
is at risk for 10% of the principal balance of each loan. The FHA will insure
the remaining 90% of the principal balance of each loan, subject to the limits
of the reserve amount discussed below. Such FHA insurance is accorded the full
faith and credit of the United States of America. Thus, a lender under the
program risks the loss of up to 10% of the principal balance on every loan
submitted to the FHA for an insurance claim (or a greater amount if the lender's
reserve amount is diminished or exhausted), plus a portion of the interest on
such loans.
At the time the FHA receives a new loan origination or transfer of note
report from an approved lender, the FHA adds to the balance in the reserve
amount established by the FHA for the lender originating or purchasing such loan
an amount equal to 10% of the amount disbursed, advanced or expended by the
lender in originating or purchasing the loan. The balance in the reserve amount
limits the amount of claims the FHA is required to pay.
The reserve amount established by the FHA for each lender will be
reduced by the amount of all insurance claims approved for payment in
conjunction with losses on such loans. The lender's reserve amount will be
increased based upon additions made pursuant to the origination or purchase of
eligible loans registered for insurance.
The FHA charges a fee of 0.50% per annum of the original balance for
each loan it insures, on a non- declining basis. The FHA bills the lender
annually (on the anniversary date of origination) for the insurance premium,
unless the loan has a maturity of 25 months or less, in which case the insurance
charge is payable in one lump sum. If a loan is prepaid during the year, the FHA
will not rebate the insurance premium nor reduce the balance in the lender's
insurance coverage reserve account. The unused insurance charge will, however,
be rebated when a Title I loan is refinanced.
SECURED CONVENTIONAL HOME IMPROVEMENT LOANS
The Secured Conventional Home Improvement Loans will consist of secured
conventional loans, the proceeds of which generally will be used for purposes
similar to those described under the heading "--FHA Loans." To the extent set
forth in the related Prospectus Supplement, the Secured Conventional Home
Improvement Loans will be fully amortizing and will bear interest at a fixed or
variable annual percentage rate.
UNSECURED HOME IMPROVEMENT LOANS
The Unsecured Home Improvement Loans will consist of conventional
unsecured home improvement loans and FHA insured unsecured home improvement
loans. To the extent set forth in the related Prospectus Supplement, the
Unsecured Home Improvement Loans will be fully amortizing and will bear interest
at a fixed or variable annual percentage rate.
AGENCY SECURITIES
Government National Mortgage Association. GNMA is a wholly-owned
corporate instrumentality of the United States within the United Stated
Department of Housing and Urban Development HUD. Section 306(g) of Title II of
the National Housing Act of 1934, as amended (the "Housing Act"), authorizes
GNMA to, among other things, guarantee the timely payment of the principal of
and interest on certificates which represent an interest in a pool of mortgage
loans insured by FHA under the Housing Act, or Title V of the Housing Act of
1949 ("FHA Loans"), or partially guaranteed by the VA under the Servicemen's
Readjustment Act of 1944, as amended, or chapter 37 of Title 38, United States
Code ("VA Loans").
Section 306(g) of the Housing Act provides that "the full faith and
credit of the United States is pledged to the payment of all amounts which may
be required to be paid under any guarantee under this subsection." In order to
meet its obligations under any such guarantee, GNMA may, under Section 306(d) of
the Housing Act, borrow from the United States Treasury in an amount which is at
any time sufficient to enable GNMA, with no limitations as to amount, to perform
its obligations under its guarantee.
GNMA Certificates. Each GNMA Certificate held in a Trust Fund (which
may be a GNMA I Certificate or a GNMA II Certificate) will be a "fully modified
pass-through" mortgaged-backed certificate issued and serviced by a mortgage
banking company or other financial concern ("GNMA Issuer") approved by GNMA or
approved by FNMA as a seller-servicer of FHA Loans and/or VA Loans. The mortgage
loans underlying the GNMA Certificates held in a Trust Fund will consist of FHA
Loans and/or VA Loans. Each such mortgage loan is secured by a one- to
four-family residential property or a manufactured home. GNMA will approve the
issuance of each such GNMA Certificate in accordance with a guaranty agreement
(a "Guaranty Agreement") between GNMA and the GNMA Issuer. Pursuant to its
Guaranty Agreement, a GNMA Issuer will be required to advance its own funds in
order to make timely payments of all amounts due on each such GNMA Certificate,
even if the payments received by the GNMA Issuer on the FHA Loans or VA Loans
underlying each such GNMA Certificate are less than the amounts due on each such
GNMA Certificate.
The full and timely payment of principal of and interest on each GNMA
Certificate will be guaranteed by GNMA, which obligation is backed by the full
faith and credit of the United States. Each such GNMA Certificate will have an
original maturity of not more than 40 years (but may have original maturities of
substantially less than 40 years). Each such GNMA Certificate will provide for
the payment by or on behalf of the GNMA Issuer to the registered holder of such
GNMA Certificate of scheduled monthly payments of principal and interest equal
to the registered holder's proportionate interest in the aggregate amount of the
monthly principal and interest payment on each FHA Loan or VA Loan underlying
such GNMA Certificate, less the applicable servicing and guarantee fee which
together equal the difference between the interest on the FHA Loans or VA Loans
and the pass-through rate on the GNMA Certificate. In addition, each payment
will include proportionate pass-through payments of any prepayments of principal
on the FHA Loans or VA Loans underlying such GNMA Certificate and liquidation
proceeds in the event of a foreclosure or other disposition of any such FHA
Loans or VA Loans.
If a GNMA Issuer is unable to make the payments on a GNMA Certificate
as it becomes due, it must promptly notify GNMA and request GNMA to make such
payment. Upon notification and request, GNMA will make such payments directly to
the registered holder of such GNMA Certificate. In the event no payment is made
by a GNMA Issuer and the GNMA Issuer fails to notify and request GNMA to make
such payment, the holder of such GNMA Certificate will have recourse only
against GNMA to obtain such payment. The Trustee or its nominee, as registered
holder of the GNMA Certificates held in a Trust Fund, will have the right to
proceed directly against GNMA under the terms of the Guaranty Agreements
relating to such GNMA Certificates for any amounts that are not paid when due.
All mortgage loans underlying a particular GNMA Certificate must have
the same interest rate (except for pools of mortgage loans secured by
manufactured homes) over the term of the loan. The interest rate on such GNMA I
Certificate will equal the interest rate on the mortgage loans included in the
pool of mortgage loans underlying such GNMA I Certificate, less one-half
percentage point per annum of the unpaid principal balance of the mortgage
loans.
Mortgage loans underlying a particular GNMA II Certificate may have per
annum interest rates that vary from each other by up to one percentage point.
The interest rate on each GNMA II Certificate will be between one-half
percentage point and one and one-half percentage points lower than the highest
interest rate on the mortgage loans included in the pool of mortgage loans
underlying such GNMA II Certificate (except for pools of mortgage loans secured
by manufactured homes).
Regular monthly installment payments on each GNMA Certificate held in a
Trust Fund will be comprised of interest due as specified on such GNMA
Certificate plus the scheduled principal payments on the FHA Loans or VA Loans
underlying such GNMA Certificate due on the first day of the month in which the
scheduled monthly installments on such GNMA Certificate is due. Such regular
monthly installments on each such GNMA Certificate are required to be paid to
the Trustee as registered holder by the 15th day of each month in the case of a
GNMA I Certificate and are required to be mailed to the Trustee by the 20th day
of each month in the case of a GNMA II Certificate. Any principal prepayments on
any FHA Loans or VA Loans underlying a GNMA Certificate held in a Trust Fund or
any other early recovery of principal on such loan will be passed through to the
Trustee as the registered holder of such GNMA Certificate.
GNMA Certificates may be backed by graduated payment mortgage loans or
by "buydown" mortgage loans for which funds will have been provided (and
deposited into escrow accounts) for application to the payment of a portion of
the borrowers' monthly payments during the early years of such mortgage loan.
Payments due the registered holders of GNMA Certificates backed by pools
containing "buydown" mortgage loans will be computed in the same manner as
payments derived from other GNMA Certificates and will include amounts to be
collected from both the borrower and the related escrow account. The graduated
payment mortgage loans will provide for graduated interest payments that, during
the early years of such mortgage loans, will be less than the amount of stated
interest on such mortgage loans. The interest not so paid will be added to the
principal of such graduated payment mortgage loans and, together with interest
thereon, will be paid in subsequent years. The obligations of GNMA and of a GNMA
Issuer will be the same irrespective of whether the GNMA Certificates are backed
by graduated payment mortgage loans or "buydown" mortgage loans. No statistics
comparable to the FHA's prepayment experience on level payment, non- buydown
loans are available in respect of graduated payment or buydown mortgages. GNMA
Certificates related to a Series of Securities may be held in book-entry form.
GNMA also guarantees the timely payment of principal of and interest on
"fully modified pass-through" mortgage-backed securities issued and serviced by
certain mortgage banking companies and other financial concerns ("FNMA Project
Issuers") based upon and backed by pools of multi-family residential mortgage
loans coinsured by FHA and GNMA Project Issuers under the Housing Act ("GNMA
Project Certificates"). The Prospectus Supplement for a Series of Securities
that includes GNMA Project Certificates will set forth additional information
regarding the GNMA guaranty program, servicing of the mortgage pool, the payment
of principal and interest on GNMA Project Certificates and other matters with
respect to multi-family residential mortgage loans that qualify for the GNMA
guaranty.
Federal National Mortgage Association. FNMA is a federally chartered
and privately owned corporation organized and existing under the Federal
National Mortgage Association Charter Act (the "Charter Act"). FNMA was
originally established in 1938 as a United States government agency to provide
supplemental liquidity to the mortgage market and was transformed into a
stockholder-owned and privately-managed corporation by legislation enacted in
1968.
FNMA provides funds to the mortgage market primarily by purchasing
mortgage loans from lenders, thereby replenishing their funds for additional
lending. FNMA acquires funds to purchase mortgage loans from many capital market
investors that may not ordinarily invest in mortgages, thereby expanding the
total amount of funds available for housing. Operating nationwide, FNMA helps to
redistribute mortgage funds from capital-surplus to capital-short areas.
FNMA Certificates. FNMA Certificates are either Guaranteed Mortgage
Pass-Through Certificates ("FNMA MBS") or Stripped Mortgage-Backed Securities
("FNMA SMBS"). The following discussion of FNMA Certificates applies equally to
both FNMA MBS and FNMA SMBS, except as otherwise indicated. Each FNMA
Certificate included in the Trust for a Series will represent a fractional
undivided interest in a pool of mortgage loans formed by FNMA. Each such pool
will consist of mortgage loans of one of the following types: (i) fixed-rate
level installment conventional mortgage loans; (ii) fixed-rate level installment
mortgage loans that are insured by FHA or partially guaranteed by the VA; (iii)
adjustable rate conventional mortgage loans; or (iv) adjustable rate mortgage
loans that are insured by the FHA or partially guaranteed by the VA. Each
mortgage loan must meet the applicable standards set forth under the FNMA
purchase program. Each such mortgage loan will be secured by a first lien on a
one-family or two- to four-family residential property. Each such FNMA
Certificate will be issued pursuant to a trust indenture. Original maturities of
substantially all of the conventional, level payment mortgage loans underlying a
FNMA Certificate are expected to be between either 8 to 15 years or 20 to 40
years. The original maturities of substantially all of the fixed rate level
payment FHA Loans or VA Loans are expected to be 30 years.
Mortgage loans underlying a FNMA Certificate may have annual interest
rates that vary by as much as two percentage points from each other. The rate of
interest payable on a FNMA MBS (and the series pass-through rate payable with
respect to a FNMA SMBS) is equal to the lowest interest rate of any mortgage
loan in the related pool, less a specified minimum annual percentage
representing servicing compensation and FNMA's guaranty fee. Under a regular
servicing option (pursuant to which the mortgagee or other servicer assumes the
entire risk of foreclosure losses), the annual interest rates on the mortgage
loans underlying a FNMA Certificate will be between 50 basis points and 250
basis points greater than the annual pass-through rate if a FNMA MBS or the
series pass-through rate if a FNMA SMBS; and under a special servicing option
(pursuant to which FNMA assumes the entire risk for foreclosure losses), the
annual interest rates on the mortgage loans underlying a FNMA Certificate will
generally be between 55 basis points and 255 basis points greater than the
annual FNMA Certificate pass-through rate if a FNMA MBS, or the series
pass-through rate if a FNMA SMBS.
FNMA guarantees to each registered holder of a FNMA Certificate that
it will distribute on a timely basis amounts representing such holder's
proportionate share of scheduled principal and interest payments at the
applicable pass-through rate provided for by such FNMA Certificate on the
underlying mortgage loans, whether or not received, and such holder's
proportionate share of the full principal amount of any foreclosed or other
finally liquidated mortgage loan, whether or not such principal amount is
actually recovered. The obligations of FNMA under its guarantees are obligations
solely of FNMA and are not backed by, nor entitled to, the full faith and credit
of the United States. If FNMA were unable to satisfy its obligations,
distributions to holders of FNMA Certificates would consist solely of payments
and other recoveries on the underlying mortgage loans and, accordingly, monthly
distributions to holders of FNMA Certificates would be affected by delinquent
payments and defaults on such mortgage loans.
FNMA SMBS are issued in series of two or more classes, with each class
representing a specified undivided fractional interest in principal
distributions and interest distributions (adjusted to the series pass-through
rate) on the underlying pool of mortgage loans. The fractional interests of each
class in principal and interest distributions are not identical, but the classes
in the aggregate represent 100% of the principal distributions and interest
distributions (adjusted to the series pass-through rate) on the respective pool.
Because of such difference between the fractional interests in principal and
interest of each class, the effective rate of interest on the principal of each
class of FNMA SMBS may be significantly higher or lower than the series
pass-through rate and/or the weighted average interest rate of the underlying
mortgage loans.
Unless otherwise specified by FNMA, FNMA Certificates evidencing
interests in pools of mortgages formed on or after May 1, 1985 will be available
in book-entry form only. Distributions of principal and interest on each FNMA
Certificate will be made by FNMA on the 25th day of each month to the persons in
whose name the FNMA Certificate is entered in the books of the Federal Reserve
Banks (or registered on the FNMA Certificate register in the case of fully
registered FNMA Certificates) as of the close of business on the last day of the
preceding month. With respect to FNMA Certificates issued in book-entry form,
distributions thereon will be made by wire, and with respect to fully registered
FNMA Certificates, distributions thereon will be made by check.
Federal Home Loan Mortgage Corporation. FHLMC is a publicly held United
States government- sponsored enterprise created pursuant to the Federal Home
Loan Mortgage Corporation Act, Title III of the Emergency Home Finance Act of
1970, as amended (the "FHLMC Act"). The common stock of FHLMC is owned by the
Federal Home Loan Banks. FHLMC was established primarily for the purpose of
increasing the availability of mortgage credit for the financing of urgently
needed housing. It seeks to provide an enhanced degree of liquidity for
residential mortgage investments primarily by assisting in the development of
secondary markets for conventional mortgages. The principal activity of FHLMC
currently consists of the purchase of first lien conventional mortgage loans or
participation interests in such mortgage loans and the sale of the mortgage
loans or participations so purchased in the form of mortgage securities,
primarily FHLMC Certificates. FHLMC is confined to purchasing, so far as
practicable, mortgage loans that it deems to be of such quality, type and class
as to meet generally the purchase standards imposed by private institutional
mortgage investors.
FHLMC Certificates. Each FHLMC Certificate represents an undivided
interest in a pool of mortgage loans that may consist of first lien conventional
loans, FHA Loans or VA Loans (a "FHLMC Certificate Group"). FHLMC Certificates
are sold under the terms of a Mortgage Participation Certificate Agreement. A
FHLMC Certificate may be issued under either FHLMC's Cash Program or Guarantor
Program.
Unless otherwise described in the Prospectus Supplement, Mortgage loans
underlying the FHLMC Certificates held by a Trust Fund will consist of mortgage
loans with original terms to maturity of between 10 and 40 years. Each such
mortgage loan must meet the applicable standards set forth in the FHLMC Act. A
FHLMC Certificate Group may include whole loans, participation interests in
whole loans and undivided interests in whole loans and/or participations
comprising another FHLMC Certificate Group. Under the Guarantor Program, any
such FHLMC Certificate Group may include only whole loans or participation
interests in whole loans.
FHLMC guarantees to each registered holder of a FHLMC Certificate the
timely payment of interest on the underlying mortgage loans to the extent of the
applicable Security rate on the registered holder's pro rata share of the unpaid
principal balance outstanding on the underlying mortgage loans in the FHLMC
Certificate Group represented by such FHLMC Certificate, whether or not
received. FHLMC also guarantees to each registered holder of a FHLMC Certificate
ultimate receipt by such holder of all principal on the underlying mortgage
loans, without any offset or deduction, to the extent of such holder's pro rata
share thereof, but does not, except if and to the extent specified in the
Prospectus Supplement for a Series of Securities, guarantee the timely payment
of scheduled principal. Under FHLMC's Gold PC Program, FHLMC guarantees the
timely payment of principal based on the difference between the pool factor,
published in the month preceding the month of distribution and the pool factor
published in such month of distribution. Pursuant to its guarantees, FHLMC
indemnifies holders of FHLMC Certificates against any diminution in principal by
reason of charges for property repairs, maintenance and foreclosure. FHLMC may
remit the amount due on account of its guarantee of collection of principal at
any time after default on an underlying mortgage loan, but not later than (i) 30
days following foreclosure sale, (ii) 30 days following payment of the claim by
any mortgage insurer, or (iii) 30 days following the expiration of any right of
redemption, whichever occurs later, but in any event no later than one year
after demand has been made upon the mortgagor for accelerated payment of
principal. In taking actions regarding the collection of principal after default
on the mortgage loans underlying FHLMC Certificates, including the timing of
demand for acceleration, FHLMC reserves the right to exercise its judgment with
respect to the mortgage loans in the same manner as for mortgage loans which it
has purchased but not sold. The length of time necessary for FHLMC to determine
that a mortgage loan should be accelerated varies with the particular
circumstances of each mortgagor, and FHLMC has not adopted standards which
require that the demand be made within any specified period.
FHLMC Certificates are not guaranteed by the United States or by any
Federal Home Loan Bank and do not constitute debts or obligations of the United
States or any Federal Home Loan Bank. The obligations of FHLMC under its
guarantee are obligations solely of FHLMC and are not backed by, nor entitled
to, the full faith and credit of the United States. If FHLMC were unable to
satisfy such obligations, distributions to holders of FHLMC Certificates would
consist solely of payments and other recoveries on the underlying mortgage loans
and, accordingly, monthly distributions to holders of FHLMC Certificates would
be affected by delinquent payments and defaults on such mortgage loans.
Registered holders of FHLMC Certificates are entitled to receive their
monthly pro rata share of all principal payments on the underlying mortgage
loans received by FHLMC, including any scheduled principal payments, full and
partial prepayments of principal and principal received by FHLMC by virtue of
condemnation, insurance, liquidation or foreclosure, and repurchases of the
mortgage loans by FHLMC or the seller thereof. FHLMC is required to remit each
registered FHLMC Certificateholder's pro rata share of principal payments on the
underlying mortgage loans, interest at the FHLMC pass-through rate and any other
sums such as prepayment fees, within 60 days of the date on which such payments
are deemed to have been received by FHLMC.
Under FHLMC's Cash Program, with respect to pools formed prior to June
1, 1987, there is no limitation on the amount by which interest rates on the
mortgage loans underlying a FHLMC Certificate may exceed the pass-through rate
on the FHLMC Certificate. With respect to FHLMC Certificates issued on or after
June 1, 1987, the maximum interest rate on the mortgage loans underlying such
FHLMC Certificates may exceed the pass through rate of the FHLMC Certificates by
50 to 100 basis points. Under such program, FHLMC purchases groups of whole
mortgage loans from sellers at specified percentages of their unpaid principal
balances, adjusted for accrued or prepaid interest, which when applied to the
interest rate of the mortgage loans and participations purchased, results in the
yield (expressed as a percentage) required by FHLMC. The required yield, which
includes a minimum servicing fee retained by the servicer, is calculated using
the outstanding principal balance. The range of interest rates on the mortgage
loans and participations in a FHLMC Certificate group under the Cash Program
will vary since mortgage loans and participations are purchased and assigned to
a FHLMC Certificate group based upon their yield to FHLMC rather than on the
interest rate on the underlying mortgage loans.
Under FHLMC's Guarantor Program, the pass-through rate on a FHLMC
Certificate is established based upon the lowest interest rate on the underlying
mortgage loans, minus a minimum servicing fee and the amount of FHLMC's
management and guaranty income as agreed upon between the seller and FHLMC. For
FHLMC Certificate Groups formed under the Guarantor Program with certificate
numbers beginning with 18-012, the range between the lowest and the highest
annual interest rates on the mortgage loans in a FHLMC Certificate group may not
exceed two percentage points.
FHLMC Certificates duly presented for registration of ownership on or
before the last business day of a month are registered effective as of the first
day of the month. The first remittance to a registered holder of a FHLMC
Certificate will be distributed so as to be received normally by the 15th day of
the second month following the month in which the purchaser became a registered
holder of the FHLMC Certificates. Thereafter, such remittance will be
distributed monthly to the registered holder so as to be received normally by
the 15th day of each month. The Federal Reserve Bank of New York maintains
book-entry accounts with respect to FHLMC Certificates sold by FHLMC on or after
January 2, 1985, and makes payments of principal and interest each month to the
registered holders thereof in accordance with such holders' instructions.
FHLMC also issues mortgage participation certificates representing an
undivided interest in a group of multi-family residential mortgage loans or
participations in multi-family residential mortgage loans purchased by FHLMC
("FHLMC Project Certificates"). The Prospectus Supplement for a Series of
Securities issued by a Trust that included FHLMC Project Certificates will set
forth additional information regarding multi-family residential mortgage loans
that qualify for purchase by FHLMC.
Stripped Mortgage-Backed Securities. Agency Securities may consist of
one or more stripped mortgage-backed securities, each as described herein and in
the related Prospectus Supplement. Each such Agency Security will represent an
undivided interest in all or part of either the principal distributions (but not
the interest distributions) or the interest distributions (but not the principal
distributions), or in some specified portion of the principal and interest
distributions (but not all of such distributions) on certain FHLMC, FNMA, GNMA
or other government agency or government-sponsored agency certificates. The
underlying securities will be held under a trust agreement by FHLMC, FNMA, GNMA
or another government agency or government- sponsored agency, each as trustee,
or by another trustee named in the related Prospectus Supplement. FHLMC, FNMA,
GNMA or another government agency or government-sponsored agency will guarantee
each stripped Agency Security to the same extent as such entity guarantees the
underlying securities backing such stripped Agency Security, unless otherwise
specified in the related Prospectus Supplement.
Other Agency Securities. If specified in the related Prospectus
Supplement, a Trust Fund may include other mortgage pass-through certificates
issued or guaranteed by GNMA, FNMA, FHLMC or other government agencies or
government-sponsored agencies. The characteristics of any such mortgage
pass-through certificates will be described in such Prospectus Supplement. If so
specified, a combination of different types of Agency Securities may be held in
a Trust Fund.
PRIVATE MORTGAGE-BACKED SECURITIES
General. Private Mortgage-Backed Securities may consist of (a)
mortgage participations or pass-through certificates representing beneficial
interests in certain mortgage loans or (b) CMOs secured by such mortgage loans.
Private Mortgage-Backed Securities will have been issued pursuant to a PMBS
agreement (the "PMBS Agreement"). The seller/servicer of the underlying mortgage
loans will have entered into the PMBS Agreement with the PMBS Trustee under the
PMBS Agreement. The PMBS Trustee or its agent, or a custodian, will possess the
mortgage loans underlying such Private Mortgage-Backed Security. Mortgage loans
underlying a Private Mortgage-Backed Security will be serviced by the PMBS
Servicer directly or by one or more sub-servicers who may be subject to the
supervision of the PMBS Servicer. The PMBS Servicer will be approved as a
servicer by FNMA or FHLMC and, if FHA Loans underlie the Private Mortgage-Backed
Securities, approved by the Department of Housing and Urban Development ("HUD")
as an FHA mortgagee.
The PMBS Issuer will be a financial institution or other entity engaged
generally in the business of mortgage lending or the acquisition of mortgage
loans, a public agency or instrumentality of a state, local or federal
government, or a limited purpose or other corporation organized for the purpose
of among other things, establishing trusts and acquiring and selling housing
loans to such trusts and selling beneficial interests in such trusts. If so
specified in the Prospectus Supplement, the PMBS Issuer may be an affiliate of
the Representative. The obligations of the PMBS Issuer will generally be limited
to certain representations and warranties with respect to the assets conveyed by
it to the related trust. Unless otherwise specified in the related Prospectus
Supplement, the PMBS Issuer will not have guaranteed any of the assets conveyed
to the related trust or any of the Private Mortgage-Backed Securities issued
under the PMBS Agreement. Additionally, although the mortgage loans underlying
the Private Mortgage-Backed Securities may be guaranteed by an agency or
instrumentality of the United States, the Private Mortgage-Backed Securities
themselves will not be so guaranteed.
Distributions of principal and interest will he made on the Private
Mortgage-Backed Securities on the dates specified in the related Prospectus
Supplement. The Private Mortgage-Backed Securities may be entitled to receive
nominal or no principal distributions or nominal or no interest distributions.
Principal and interest distributions will be made on the Private Mortgage-Backed
Securities by the PMBS Trustee or the PMBS Servicer. The PMBS Issuer or the PMBS
Servicer may have the right to repurchase assets underlying the Private
Mortgage-Backed Securities after a certain date or under other circumstances
specified in the related Prospectus Supplement.
Underlying Mortgage Loans. The Underlying Mortgage Loans underlying the
Private Mortgage-Backed Securities may consist of fixed rate, level payment,
fully amortizing loans or graduated payment mortgage loans, buydown loans,
adjustable rate mortgage loans, or loans having balloon or other special payment
features. Such Underlying Mortgage Loans may be Single Family Loans, Multifamily
Loans, Cooperative Loans or Contracts secured by Manufactured Homes. As
specified in the related Prospectus Supplement, (i) no Underlying Mortgage Loan
will have had a Combined Loan-to-Value Ratio at origination in excess of the
percentage set forth in the related Prospectus Supplement, (ii) each underlying
mortgage loan will have had an original term to stated maturity of not less than
5 years and not more than 40 years, (iii) each Underlying Mortgage Loan (other
than Cooperative Loans) will be required to be covered by a standard hazard
insurance policy (which may be a blanket policy), and (iv) each mortgage loan
(other than Cooperative Loans or Contracts secured by a Manufactured Home) will
be covered by a title insurance policy.
Credit Support Relating to Private Mortgage-Backed Securities. Credit
support in the form of subordination of other private mortgage certificates
issued under the PMBS Agreement, reserve funds, insurance policies, letters of
credit, financial guaranty insurance policies, guarantees or other types of
credit support may be provided with respect to the Underlying Mortgage Loans or
with respect to the Private Mortgage-Backed Securities themselves.
Additional Information. The Prospectus Supplement for a Series for
which the related Trust includes Private Mortgage-Backed Securities will specify
(i) the aggregate approximate principal amount and type of the Private
Mortgage-Backed Securities to be included in the Trust Fund, (ii) certain
characteristics of the Underlying Mortgage Loans including (A) the payment
features of such Underlying Mortgage Loans, (B) the approximate aggregate
principal balance, if known, of Underlying Mortgage Loans insured or guaranteed
by a governmental entity, (C) the servicing fee or range of servicing fees with
respect to the Underlying Mortgage Loans, and (D) the minimum and maximum stated
maturities of the Underlying Mortgage Loans at origination, (iii) the maximum
original term-to-stated maturity of the Private Mortgage-Backed Securities, (iv)
the weighted average term-to-stated maturity of the Private Mortgage-Backed
Securities, (v) the pass-through or certificate rate of the Private
Mortgage-Backed Securities, (vi) the weighted average pass-through or
certificate rate of the Private Mortgage-Backed Securities, (vii) the PMBS
Issuer, the PMBS Servicer (if other than the PMBS Issuer) and the PMBS Trustee
for such Private Mortgage-Backed Securities, (viii) certain characteristics of
credit support, if any, such as reserve funds, insurance policies, letters of
credit or guarantees relating to the Underlying Mortgage Loans or to such
Private Mortgage-Backed Securities themselves, (ix) the terms on which the
Underlying Mortgage Loans for such Private Mortgage-Backed Securities may, or
are required to, be purchased prior to their stated maturity or the stated
maturity of the Private Mortgage- Backed Securities and (x) the terms on which
other mortgage loans may be substituted for those originally underlying the
Private Mortgage-Backed Securities.
USE OF PROCEEDS
The Representative and the Originators may use the net proceeds to be
received from the sale of the Securities of each Series for general corporate
purposes, including repayment of debt, including but not limited to warehouse
facilities, and the origination and acquisition of residential mortgage loans
and other loans. The Representative expects Securities to be sold in Series from
time to time.
THE REPRESENTATIVE AND THE ORIGINATORS
The Mortgage Loans will have been originated or acquired by the
Originators. The Money Store will act as the Master Servicer of the Mortgage
Loans and other Mortgage Assets. Except for certain representations and
warranties relating to the Mortgage Loans and other Mortgage Assets and certain
other matters, the obligations of The Money Store with respect to the Mortgage
Loans and other Mortgage Assets will be limited to its contractual servicing
obligations.
The Money Store is a New Jersey corporation and is headquartered in
Sacramento, California and Union, New Jersey.
The Money Store is a financial services company engaged, through its
subsidiaries (including the Originators), in the business of originating,
purchasing, selling and servicing consumer and commercial loans of specified
types and offering related services. Loans originated by The Money Store and its
subsidiaries have consisted primarily of mortgage loans, loans partially
guaranteed by the United States Small Business Administration, student loans,
and automobile loans.
Since 1967, The Money Store and its subsidiaries have been active in
the development of the residential home equity lending industry in the United
States.
THE SINGLE FAMILY LOAN LENDING PROGRAM
OVERVIEW
The Money Store's and the Originators' mortgage lending activities
consist primarily of originating, purchasing, selling and servicing mortgage
loans that are primarily secured by one- to four-family residential properties,
including low-rise condominiums, single-family detached homes, single-family
attached homes, planned unit developments and mixed use properties
(collectively, "Single Family Loans"). It has been the Originators' policy
generally not to make mortgage loans secured by high-rise condominiums,
cooperative residences or other categories of properties that management
believes have demonstrated relatively high levels of risk. The majority of
Single Family Loans are to borrowers owning a single-family detached home.
Single Family Loans are made to borrowers for, among other purposes, education,
home improvements and debt consolidation. The Money Store and its subsidiaries
also originate, with the intention of selling and servicing, Multifamily Loans,
FHA Loans, Secured Conventional Home Improvement Loans, Unsecured Home
Improvement Loans and loans partially guaranteed by the United States Small
Business Administration. In addition, The Money Store and its subsidiaries from
time to time purchase packages of loans from other lenders or government
agencies.
The Originators originate and purchase Single Family Loans with
original terms of up to 40 years. The following is a description of the
origination, underwriting, servicing and other procedures used by The Money
Store and the Originators in connection with their Single Family Loan program.
If a significant portion of the Mortgage Loans underlying a given Series of
Securities consists of FHA Loans, Secured Conventional Home Improvement Loans
and/or Unsecured Home Improvement Loans, the related Prospectus Supplement will
contain a similar description of the program relating to such Mortgage Loans.
SINGLE FAMILY LOAN ORIGINATION
The Originators' Single Family Loan origination offices are generally
located in small and medium-sized suburban communities. All Single Family Loan
origination offices have a manager who reports to senior management. Each
regional office supervises the operations of a group of states. The supervision
of all of the Originator's underwriting and administrative functions is
conducted from the Sacramento, California headquarters.
The entire application and approval process for Single Family Loans is
generally conducted by telephone. The Originators attempt to grant approvals of
loans quickly to borrowers meeting their underwriting criteria. A loan officer
is responsible for completing, evaluating and processing the loan application of
a prospective borrower based on information obtained from the borrower and
verified with third parties. Depending on the size of the loan applied for, loan
applications must be approved by an underwriter located in the Sacramento,
California headquarters. Loan officers are trained to structure loans that meet
the applicant's needs, while satisfying the Originators' lending criteria. If an
applicant does not meet the lending criteria, the loan officer may offer to make
a smaller loan, if a smaller loan would meet the lending criteria, or suggest a
debt consolidation package that better suits the applicant's needs.
The Originators also acquire Single Family Loans through an indirect
lending program, from independent brokers. Such Single Family Loans are
underwritten by the Originators using the same criteria applied to loans
originated by such Originator. Brokers participating in this program must
satisfy certain requirements established by the Originators pertaining to
experience, size of business and various licenses and approvals. The Originators
also acquire, from time to time, portfolios of Single Family Loans from various
third parties. The Originators will not sell such acquired loans to a Trust
unless the Originators determine that such loans, when originated, were
underwritten using the same criteria applied to loans originated by the
Originators.
Starting in October 1995, the Originators began originating Single
Family Loans under a program that will result in lower interest rates for
borrowers that make timely payments during the early years of the related loan.
Under this program, if a borrower remits all scheduled payments during the first
year of the loan on a timely basis, the interest rate on the loan will be
reduced 0.50% per annum. If the borrower remits all scheduled payments during
the second year of the loan on a timely basis, the interest rate will be reduced
an additional 0.50% per annum and, if all payments are made during the third
year of the loan on a timely basis, the interest rate will be reduced a final
0.50% per annum. Once the interest rate on a loan is reduced, it will not be
increased, regardless of the borrowers future payment record.
UNDERWRITING CRITERIA
The following is a brief description of certain of the underwriting
standards used by the Originators to underwrite Single Family Loans. The
underwriting process is intended to assess both the prospective borrower's
ability to repay and the adequacy of the real property security as collateral
for the loan granted. To the extent that the relevant underwriting criteria
differ from those described herein, the related Prospectus Supplement for such
Series will specifically describe such criteria.
In certain cases deemed appropriate by an Originator's underwriters,
loans may be made outside of the Originator's guidelines with the prior approval
of pre-designated senior officials. No information is available with respect to
the portion of the Mortgage Loans which was originated outside of these
guidelines.
The Originators' objective in originating Single Family Loans is to
provide loans to borrowers with satisfactory income and credit histories deemed
sufficient to demonstrate the ability to repay their loan. The primary and
initial origination policy is to analyze the applicant's creditworthiness (i.e.,
a determination of the applicant's ability to repay the loan). Creditworthiness
is assessed by examination of a number of factors, which may include calculating
a debt-to-income ratio obtained by dividing a borrower's fixed monthly debt by
the borrower's gross monthly income. Fixed monthly debt generally includes (i)
the monthly payment under the related prior mortgages (which generally includes
an escrow for real estate taxes) based, in the case of an adjustable-rate first
mortgage, on the assumption that the then-current rate is the rate at which
interest will accrue on such loan, (ii) the monthly payment on the loan applied
for and (iii) other installment debt, including, for revolving debt, the
required monthly payment thereon or if no such payment is specified, 5% of the
balance as of the date of calculation. Fixed monthly debt does not include any
debt (other than revolving credit debt) described above that matures within less
than 10 months of the date of calculation. Except as otherwise set forth in the
related Prospectus Supplement, the debt-to-income ratio of any borrower will not
have exceeded 50% as of origination of the related loan. Creditworthiness is
also assessed by examining the applicant's credit history through standard
credit reporting bureaus, and by checking the applicant's payment history with
respect to the first mortgage, if any, on the property.
The second origination policy for Single Family Loans is a
determination of the Combined Loan-to-Value Ratio. Combined Loan-to-Value Ratio
guidelines are established depending on the type of loan. For each Single Family
Loan, the Originator confirms the value of the property to be mortgaged by
appraisals (which in certain cases may be drive-by appraisals) performed by
independent appraisers. Drive-by appraisals involve a visual observation of the
exterior of the characteristics and condition of the property and the
neighborhood. Because the interior dimensions, improvements and conditions are
not inspected, a drive-by appraisal produces only a general approximation of
value for the particular property. If the Originator has previously originated a
loan to the same borrower secured by the same property within one year, the
Originator may rely on the prior appraisal in conjunction with a new drive-by
appraisal. If an appraisal is not required to be obtained for a Single Family
Loan, the value of the related mortgaged property, as represented by the
borrower, may be evaluated through other methods such as a drive-by appraisal, a
review of comparable sales or tax assessments or reliance upon a recent sales
price for such mortgaged property. Such methods do not constitute an appraisal
of the related mortgaged property. All Combined Loan-to-Value Ratios are
determined prior to approval of the loans.
The Originators have several procedures which they use to verify
information obtained from an applicant. The applicant's outstanding balance and
payment history on any senior mortgage may be verified by calling the senior
mortgage lender. If the senior mortgage lender cannot be reached by telephone to
verify this information, the Originator may rely upon information provided by
the applicant, such as a recent statement from the senior lender and
verification of payment, such as canceled checks, or upon information provided
by national credit bureaus.
In order to verify an applicant's employment status, the Originators
may obtain from the applicant recent tax returns or other tax forms (e.g., W-2
forms) or current pay stubs or may telephone the applicant's employer or obtain
written verification from the employer. As in the case of the senior mortgage
lender verification procedures, if the employer will not verify employment
history over the telephone, the Originator may rely solely on the other
information provided by the applicant.
The Originators will not close a Single Family Loan prior to receiving
evidence that the property securing the loan is insured. In addition, at the
closing, the borrower is required to sign a letter addressed to his insurance
carrier naming the Originator as a loss payee under the insurance policy, which
the Originator will thereafter mail to the insurer. Accordingly, the Originator
normally will not be named as a loss payee with respect to the property securing
the Single Family Loan at the time the loan is closed.
A title search is ordered to verify the vesting of title to the
Mortgaged Property, along with the existence of any mortgages, tax or other
liens that have been levied on the property, to assure that the lien priority
will be as represented by the borrower.
Most Single Family Loans originated or purchased by the Originators
generally are scheduled to amortize over their terms and provide for equal
monthly payments over their terms. The Originators also offer a "balloon"
mortgage on a limited basis. The Originators collect nonrefundable points, late
charges and various fees in certain states in connection with their mortgage
loans. Other fees charged, where allowable, include those related to credit
reports, lien searches, title insurance and recordings, prepayment fees and
appraisal fees. From time-to-time, the Originators may originate or purchase
Single Family Loans containing other features. To the extent that a substantial
portion of a Trust Fund consists of such Single Family Loans such features will
be described in the related Prospectus Supplement.
Although the Originators have no maximum dollar amount for Single
Family Loans, the actual maximum amount that they will lend is determined by an
evaluation of the applicant's ability to repay the loan, the value of the
borrower's equity in the real estate and the ratio of such equity to the real
estate's appraised value.
Commencing in 1997, the Originators began originating Single Family
Loans with Combined Loan-to-Value Ratios exceeding 100%. Such Single Family
Loans are originated to borrowers believed by the Originators to have the income
capacity and credit history to offset the lack of equity in the related
Mortgaged Property. Such Single Family Loans generally bear a higher rate of
interest than Single Family Loans with lower Combined Loan-to-Value Ratios.
QUALITY CONTROL
Quality control is exercised in two areas: lending and documentation
standards. In the case of Single Family Loans, a centralized quality control
staff checks to confirm that lending and documentation standards are met. Every
month, at least one office is audited and every loan type originated during the
prior month by such office is reviewed for compliance with lending and
documentation standards. Five percent of all Single Family Loans originated by
the Originators are audited at random on a monthly basis for compliance with
lending and documentation standards. Additional offices receive audits on a
random, monthly basis. In order to confirm the validity of appraisals obtained
at the time loans are made, reappraisals are obtained for the property securing
the loans in approximately two percent to five percent of the transactions.
REFINANCING POLICY
Where the Originators believe that borrowers having existing loans with
them are likely to refinance such loans due to interest rate changes or other
reasons, the Originators actively attempt to retain such borrowers through
solicitations of such borrowers to refinance with the Originators. Such
refinancings generate fee and servicing income for the Originators. Since the
solicited borrowers may refinance their existing loans in any case, the
Representative believes that this practice will be unlikely to affect the
prepayment experience of the Single Family Loans in a material respect. The
Originators also have solicited their borrowers who are in good standing to
apply for additional loans, consistent with their origination standards, where
deemed appropriate.
SERVICING AND COLLECTIONS
The Money Store or one of its affiliates, as Master Servicer, will be
required under the related Agreement to master service the Mortgage Loans and
other Mortgage Assets underlying a particular Series of Securities with the same
degree of skill and care that it exercises with respect to all comparable loans
and assets that it master services for its own account. Servicing includes, but
is not limited to, post-origination loan processing, customer service,
remittance handling, collections and liquidations.
Borrowers are sent payment coupon books or monthly statements that
specify the fixed payment due and the late payment amount, if any. Due dates for
payments occur throughout the calendar month. If payment is not received within
fifteen working days of the due date, an initial collection effort is made by
telephone in an attempt to bring the delinquent account current. The various
stages of delinquency are monitored and evaluated on a monthly basis.
Means of contacting delinquent accounts include, but are not limited
to, telephone calls and collection letters. When an account is 30 days past due,
the collection supervisor analyzes the account to determine the appropriate
course of action. If a borrower is experiencing difficulty in making payments on
time, the Servicer may modify the payment schedule (as permitted by the
Agreement) but will not remove the loan from a delinquency status.
The course of action taken by the Servicer is dependent upon a number
of factors including the borrower's payment history, the amount of equity in the
related Mortgaged Property and the reason for the current inability to make
timely payments.
When a loan is 90 days past due, the related Mortgaged Property is
required to be reappraised and the results evaluated by the Company to determine
a course of action. Foreclosure regulations and practices and the rights of the
owner in default vary from state to state, but generally procedures may be
initiated if: (i) the loan is 90 days or more delinquent; (ii) a notice of
default on a senior lien is received or (iii) the servicer discovers
circumstances indicating potential loss exposure. During the foreclosure
process, any expenses incurred by the Servicer may be added to the amount owed
by the borrower, as permitted by applicable law. Upon completion of the
foreclosure, the property is sold to an outside bidder, or passes to the
mortgagee, in which case the Servicer proceeds to liquidate the asset.
The Servicer may not foreclose on the property securing a junior
mortgage loan unless it forecloses subject to the related senior mortgages. In
such cases, the Servicer generally will pay the amount due on the senior
mortgages to the senior mortgagees, if the Servicer considers it to be in the
best interest of the related Securityholders to do so. In the event that
foreclosure proceedings have been instituted on a senior mortgage prior to the
initiation of the Servicer's foreclosure action, the Servicer will either
satisfy such mortgage at the time of the foreclosure sale or take other
appropriate action. The Servicer retains "in-house" counsel in part to help
assist with problem accounts. Such counsel may be utilized by all levels of
management to help avoid legal problems, including those associated with
consumer lending.
Servicing and charge-off policies and collection practices may change
over time in accordance with the servicer's business judgment, changes in its
real-estate loan portfolio and applicable laws and regulations, as well as other
items.
Regulations and practices regarding the liquidation of properties
(e.g., foreclosure) and the rights of the borrower in default vary greatly from
state to state. Only if a delinquency cannot otherwise be cured will the
servicer decide that liquidation is the appropriate course of action. If, after
determining that purchasing a property securing a mortgage loan will minimize
the loss associated with such defaulted loan, the servicer may bid at the
foreclosure sale for such property or accept a deed in lieu of foreclosure.
<PAGE>
DESCRIPTION OF THE SECURITIES
Each Series of Certificates will be issued, from time to time,
pursuant to either a Pooling and Servicing Agreement or a Trust Agreement, and
each Series of Notes will be issued, from time to time, pursuant to an
Indenture, each to be dated as of the date set forth in the related Prospectus
Supplement (each such date, a "Cut-off Date"), among The Money Store, the
applicable Originators, and/or certain affiliates thereof, and the Trustee for
the benefit of the related Certificateholders or Noteholders, as the case may
be, of such Series. A Series may contain either Certificates or Notes or a
combination thereof. The provisions of each Agreement will vary depending upon
the nature of the Securities to be issued thereunder and the nature of the
related Trust. A form of a Pooling and Servicing Agreement, Trust Agreement,
Sale and Servicing Agreement and an Indenture have each been filed as an exhibit
to the Registration Statement of which this Prospectus is a part. The following
summaries describe certain material provisions which may appear in each
Agreement. The Prospectus Supplement for a Series of Securities will describe
any provision of the Agreement relating to such Series that materially differs
from the description thereof contained in this Prospectus. The summaries do not
purport to be complete and are subject to, and are qualified in their entirety
by reference to, all of the provisions of the Agreement for each Series of
Securities and the applicable Prospectus Supplement. The Representative will
provide a copy of the Agreement (without exhibits) relating to any Series
without charge upon written request of a holder of a Security of such Series
addressed to The Money Store, 2840 Morris Avenue, Union, New Jersey 07083,
Attention: Corporate Counsel.
GENERAL
The Securities of each Series will represent debt obligations of, in
the case of Notes, or fractional undivided ownership interests in, in the case
of Certificates, a Trust created pursuant to the related Agreement and/or such
other assets as may be described in the related Prospectus Supplement. The
Securities will be issued in fully registered form, in minimum denominations of
$1,000 and integral multiples of $1,000 in excess thereof (or such other amounts
do may be set forth in a Prospectus Supplement), except that one Certificate or
Note of each Class may be issued in a different denomination.
Definitive Securities, if issued, will be transferable and exchangeable
at the corporate trust office of the Trustee or, at the election of the Trustee,
at the office of a Security Registrar appointed by the Trustee. No service
charge will be made for any registration of exchange or transfer, but the
Trustee may require payment of a sum sufficient to cover any tax or other
governmental charge. If provided in the related Agreement, a security
administrator may perform certain duties in connection with the administration
of the Securities.
The Securities will not represent obligations of the Representative
(except with respect to a Guaranty issued in connection with a Series), the
Originators or any affiliate thereof. The assets of each Trust will consist of
one or more of the following, as set forth in the related Prospectus Supplement,
(a) the Mortgage Loans that from time to time are subject to the related
Agreement and which are held in the related Pool; (b) the assets for the Trust
that from time to time are required by the Agreement to be deposited in certain
reserve accounts, including the Distribution Account, the Principal and Interest
Account, the Expense Account, the Letter of Credit Fee Account and the Insurance
Account (each, as defined herein), or to be invested in Permitted Investments
(as defined herein); (c) property and any proceeds thereof acquired by
foreclosure of the Mortgage Loans in such Pool, deed in lieu of foreclosure or a
comparable conversion; (d) any Primary Mortgage Insurance Policies; (e) any
Mortgage Pool Insurance Policies; (f) any Special Hazard Insurance Policies; (g)
any Bankruptcy Bonds; and (h) all rights under any other insurance policies,
guarantees, supplemental interest payments, surety bonds, letters of credit,
guaranties of The Money Store or other credit enhancement or maturity protection
or other derivative instrument covering any Securities, any Mortgage Loan in the
related Pool or any related Mortgaged Property which is required to be
maintained pursuant to the related Agreement.
Each Series of Securities will be issued in one or more Classes. Each
Class of Securities of a Series will evidence beneficial ownership of the
interest in assets of the related Trust specified in the related Prospectus
Supplement. A Class of Securities may be divided into two or more Sub-Classes,
as specified in the related Prospectus Supplement.
A Series may include two or more Classes of Certificates, as specified
in the related Prospectus Supplement, which differ as to the timing and priority
of payment, seniority, allocations of loss, Pass-Through Rate or amount of
payments of principal or interest, or as to which payments of principal or
interest may or may not be made upon the occurrence of specified events or on
the basis of collections from designated portions of the Mortgage Assets for
such Series. A Series of Certificates may include one or more Classes of Senior
Certificates that receive certain preferential treatment, specified in the
related Prospectus Supplement, with respect to one or more Classes of
Subordinated Certificates of such Series. Certain Series or Classes of
Certificates within a Series may be covered by a Guaranty Insurance Policy,
Mortgage Pool Insurance Policy, Special Hazard Insurance Policy, Bankruptcy Bond
or other insurance policies, cash accounts, letters of credit, financial
guaranty insurance policies, third party guarantees, supplemental interest
payments or other forms of credit enhancement or maturity protection, or
derivative products, in each case as described herein and in the related
Prospectus Supplement. The Pass-Through Rate for a Class of Certificates that
pay interest based upon a floating rate of interest, as specified in the related
Prospectus Supplement, may base such floating rate upon any of the following:
(i) the auction procedures for Auction Rate Securities described herein, (ii)
LIBOR plus an amount set forth in the related Prospectus Supplement , (iii) the
T-Bill Rate plus an amount set forth in the related Prospectus Supplement or
(iv) any such other method or procedures used to determine the floating rate of
interest as may be described in the applicable Prospectus Supplement. In
addition, a Series may include one or more Classes of Certificates entitled to
(a) principal payments with disproportionate, nominal or no interest payments or
(b) interest payments with disproportionate, nominal or no principal payments
(Strip Certificates).
A Series may include two or more Classes of Notes, as specified in the
related Prospectus Supplement, which differ as to the timing and priority of
payment, seniority, allocations of loss, Interest Rate or amount of payments of
principal or interest, or as to which payments of principal or interest may or
may not be made upon the occurrence of specified events or on the basis of
collections from designated portions of the Mortgage Assets for such Series. A
Series of Notes may include one or more Classes of Senior Notes which receive
certain preferential treatment specified in the related Prospectus Supplement
with respect to one or more Classes of Subordinated Notes of such Series.
Certain Series or Classes of Notes within a Series may be covered by a Guaranty
Insurance Policy, Mortgage Pool Insurance Policy, Special Hazard Insurance
Policy, Bankruptcy Bond or other insurance policies, cash accounts, letters of
credit, financial guaranty insurance policies, third party guarantees,
supplemental interest payments or other forms of credit enhancement or maturity
protection, or derivative products, in each case as described herein and in the
related Prospectus Supplement. The Interest Rate for a Class of Notes that pay
interest based upon a floating rate of interest, as specified in the related
Prospectus Supplement, may base such floating rate upon any of following: (i)
the auction procedures for Auction Rate Securities described herein, (ii) LIBOR
plus an amount set forth in the related Prospectus Supplement , (iii) the T-Bill
Rate plus an amount set forth in the related Prospectus Supplement or (iv) any
such other method or procedures used to determine the floating rate of interest
as may be described in the applicable Prospectus Supplement. In addition, a
Series may include one or more Classes of Notes entitled to (a) principal
payments with disproportionate, nominal or no interest payments or (b) interest
payments with disproportionate, nominal or no principal payments (Strip Notes).
With respect to any Series of Securities that includes one or more
Classes of Notes, distributions in respect of the Certificates may be
subordinated in priority of payment to payments on the Notes of such Series, to
the extent specified in the related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement,
distributions of principal and interest (or, where applicable, of principal only
or interest only) on the related Securities will be made by the Trustee on each
Remittance Date, in the amounts specified in the related Prospectus Supplement.
Distributions will be made to the persons in whose names the Securities are
registered at the close of business on the record dates specified in the
Prospectus Supplement unless Definitive Securities have been issued, the
registered holder of all Securities will be Cede or such other nominee specified
in the related Prospectus Supplement. Distributions will be made by check mailed
to the persons entitled thereto at the address appearing in the register
maintained for holders of Securities (the "Security Register") or, to the extent
described in the related Prospectus Supplement, by wire transfer or by such
other means as are described therein, except that the final distribution in
retirement of the Securities will be made only upon presentation and surrender
of the Securities at the office or agency of the Trustee or other person
specified in the final distribution notice to Securityholders.
DISTRIBUTIONS ON SECURITIES
Each Class of Securities within a Series will evidence the interests
specified in the related Prospectus Supplement, which may (i) include the right
to receive distributions allocable only to principal, only to interest or to any
combination thereof; (ii) include the right to receive distributions only of
prepayments of principal throughout the lives of the Securities or during
specified periods; (iii) be subordinated in its right to receive distributions
of scheduled payments of principal, prepayments of principal, interest or any
combination thereof to one or more other Classes of Securities of such Series
throughout the lives of the Securities or during specified periods or may be
subordinated with respect to certain losses or delinquencies; (iv) include the
right to receive such distributions only after the occurrence of events
specified in the Prospectus Supplement; (v) include the right to receive
distributions in accordance with a schedule or formula or on the basis of
collections from designated portions of the assets in the related Trust; (vi)
include, as to Securities entitled to distributions allocable to interest, the
right to receive interest at a Fixed Rate or an Adjustable Rate; and (vii)
include, as to Securities entitled to distributions allocable to interest, the
right to distributions allocable to interest only after the occurrence of events
specified in the related Prospectus Supplement, and in each case, may accrue
interest until such events occur, as specified in such Prospectus Supplement.
Distributions allocable to principal and interest on the Securities
will be made by the Trustee out of, and only to the extent of, funds available
in the related Distribution Account and other accounts to the extent described
in the related Prospectus Supplement. To the extent described in the related
Prospectus Supplement, on each Remittance Date, the Master Servicer will
withdraw from the applicable Distribution Account and such other accounts as may
be described in the related Prospectus Supplement and distribute to the
Securityholders of each Class (other than a Series having a Class of
Subordinated Certificates, as described below), either the specified interest of
such Class in the Pool times the aggregate of all amounts on deposit in the
Distribution Account as of the Determination Date, or, in the case of Classes
which have been assigned an aggregate principal balance and Pass-Through Rate or
Interest Rate, payments of interest and payments in reduction of such aggregate
principal balance from all amounts on deposit in the Distribution Account on the
Determination Date, in the priority and calculated in the manner set forth in
the related Prospectus Supplement, except, in each case, for (i) all payments on
the Mortgage Loans that were due on or before the Cut-off Date; (ii) all
Principal Prepayments, Liquidation Proceeds and Insurance Proceeds received
after the period specified in the related Prospectus Supplement (the "Principal
Prepayment Period"); (iii) all scheduled payments of principal and interest due
on a date or dates subsequent to the Determination Date; (iv) amounts
representing reimbursement for Advances, as specified in the related Prospectus
Supplement; (v) amounts representing reimbursement for any unpaid Servicing Fee
or Contingency Fee and expenses from Liquidation Proceeds, condemnation proceeds
and proceeds of insurance policies with respect to the related Mortgage Loans;
(vi) all income from any Permitted Investments held in the Distribution Account
for the benefit of the Master Servicer; and (vii) any Advances deposited in the
Distribution Account prior to the applicable Remittance Date.
The timing and amounts of distributions allocable to interest and
principal and, if applicable, Principal Prepayments and scheduled payments of
principal, to be made on any Remittance Date may vary among Classes, over time
or otherwise as specified in the Prospectus Supplement. Differing allocations of
principal and interest to different Classes of Securityholders will have the
effect of accelerating the amortization of Senior Notes or Senior Certificates,
as the case may be, while increasing the interests evidenced by the Subordinated
Notes or Senior Certificates, as the case may be, in the related Trust.
Distributions to any Class of Certificates or Notes will be made pro rata to all
Securityholders of that Class, or as otherwise described in a Prospectus
Supplement.
SUMMARY OF AUCTION PROCEDURES
The following summarizes certain procedures that will be used in
determining the interest rates on any Notes or Certificates that are Auction
Rate Securities. Appendix I hereto contains a more detailed description of these
procedures. Prospective investors in the Auction Rate Securities should read
carefully the following summary, along with the more detailed description in
Appendix I.
The interest rate on each Class of Auction Rate Securities will be
determined periodically (generally, for periods ranging from 7 days to one year)
by means of a "Dutch Auction." In this Dutch Auction, investors and potential
investors submit orders through an eligible broker/dealer as to the principal
amount of Auction Rate Securities such investors wish to buy, hold or sell at
various interest rates. The broker/dealers submit their clients' orders to the
auction agent, who processes all orders submitted by all eligible broker/dealers
and determines the interest rate for the upcoming interest period. The
broker/dealers are notified by the auction agent of the interest rate for the
upcoming interest period and are provided with settlement instructions relating
to purchases and sales of Auction Rate Securities.
In the auction procedures, the following types of orders may be
submitted:
(i) Bid/Hold Orders - the minimum interest rate that a
current investor is willing to accept in order to
continue to hold some or all of its Auction Rate
Securities for the upcoming interest period;
(ii) Sell Orders - an order by a current investor to sell
a specified principal amount of Auction Rate
Securities, regardless of the upcoming interest rate;
and
(iii) Potential Bid Orders - the minimum interest rate that
a potential investor (or a current investor wishing
to purchase additional Auction Rate Securities) is
willing to accept in order to buy a specified
principal amount of Auction Rate Securities.
If an existing investor does not submit orders with respect to all its
Auction Rate Securities of the applicable Class, the investor will be deemed to
have submitted a Hold Order at the new interest rate for that portion of the
Auction Rate Securities for which no order was received.
In connection with each auction, Auction Rate Securities will be
purchased and sold between investors and potential investors at a price equal to
their then outstanding principal balance (i.e., par) plus any accrued interest.
The following example helps illustrate how the above-described procedures are
used in determining the interest rate on the Auction Rate Securities.
(a) Assumptions:
1. Denominations (Units) = $100,000
2. Interest Period = 28 Days
3. Principal Amount Outstanding = $50 Million (500 Units)
(b) Summary of All Orders Received For The Auction
Bid/Hold Orders Sell Orders Potential Bid Orders
10 Units at 2.90% 50 Units Sell 20 Units at 2.95%
30 Units at 3.02% 50 Units Sell 30 Units at 3.00%
60 Units at 3.05% 100 Units Sell 50 Units at 3.05%
--------------
100 Units at 3.10% 200 Units 50 Units at 3.10%
100 Units at 3.12% 50 Units at 3.11%
------------------ 50 Units at 3.14%
300 Units 100 Units at 3.15%
------------------
350 Units
Total units under existing Bid/Hold Orders and Sell Orders always equal
issue size (in this case 500 units).
(c) Auction Agent Organizes Orders In Ascending Order
<TABLE>
<CAPTION>
Order Number Cumulative Order Number Cumulative Total
Number of Units Total (Units) % Number of Units (Units) %
------ -------- ------------- --- ------ --------- ------- ---
<S> <C> <C> <C> <C> <C> <C> <C>
1 10(W) 10 2.90% 7 100(W) 300 3.10%
2 20(W) 30 2.95% 8 50(W) 350 3.10%
3 30(W) 60 3.00% 9 50(W) 400 3.11%
4 30(W) 90 3.02% 10 100(W) 500 3.12%
5 50(W) 140 3.05% 11 50(L) 3.14%
6 60(W) 200 3.05% 12 100(L) 3.15%
</TABLE>
(W) Winning Order (L) Losing Order
Order #10 is the order that clears the market of all available units.
All winning orders are awarded the winning rate (in this case, 3.12%) as the
interest rate for the next period that interest will accrue (each an "Interest
Period"), when another auction will be held. Multiple orders at the winning rate
are allocated units on a pro rata basis. Notwithstanding the foregoing, in no
event will the interest rate exceed the lesser of the Net Loan Rate or the
Maximum Auction Rate (each as described in Appendix I).
The above example assumes that a successful auction has occurred (i.e.,
all Sell Orders and all Bid/Hold Orders below the new interest rate were
fulfilled). In certain circumstances, there may be insufficient Potential Bid
Orders to purchase all the Auction Rate Securities offered for sale. In such
circumstances, the interest rate for the upcoming Interest Period will equal the
lesser of the Net Loan Rate and the Maximum Auction Rate. Also, if all the
Auction Rate Securities are subject to Hold Orders (i.e., each holder of Auction
Rate Securities wishes to continue holding its Auction Rate Securities,
regardless of the interest rate) the interest rate for the upcoming Interest
Period will equal the lesser of the Net Loan Rate and the All Hold Rate (as
defined below).
As stated above, the foregoing is only a summary of the auction
procedures. A more detailed description of these procedures is contained in
Appendix I.
MONTHLY ADVANCES AND COMPENSATING INTEREST
In order to maintain a regular flow of scheduled interest payments to
Securityholders (rather than to guarantee or insure against losses) if provided
in the related Prospectus Supplement, the Master Servicer will be required to
advance to the Trustee, on or before each Remittance Date (from its own funds),
the amount, if any, by which (a) the sum of (x) 30 days' interest at the
applicable weighted average Adjusted Mortgage Loan Remittance Rate (as defined
below) on the then outstanding principal balance of the related Series of
Securities and (y) the amount, if any, required to be deposited into the related
Reserve Account (as specified in the Prospectus Supplement) for the related
Remittance Date exceeds (b) the amount received by the Master Servicer and any
Sub-Servicers in respect of interest on the Mortgage Loans as of the related
Record Date (such excess, the "Monthly Advance"). For each Class of Securities,
the "Adjusted Mortgage Loan Remittance Rate" will equal the sum of the related
Pass-Through Rate or Interest Rate and the rate used in determining certain
expenses payable by the related Trust, as more specifically set forth in the
related Prospectus Supplement. The Master Servicer will not be required to make
any Monthly Advances which it determines, in good faith, would be nonrecoverable
from amounts received in respect of the Mortgage Loans.
If so specified in the related Prospectus Supplement, not later than
the close of business on each Determination Date, with respect to each Mortgage
Loan for which a Principal Prepayment in full or Curtailment was received during
the related Due Period, the Master Servicer will be required to remit to the
Trustee for deposit in the Distribution Account from amounts otherwise payable
to it as servicing compensation, an amount equal to the excess of (a) 30 days'
interest on the principal balance of each such Mortgage Loan as of the beginning
of the related Due Period at the applicable weighted average Adjusted Mortgage
Loan Remittance Rate, over (b) the amount of interest actually received on the
related Mortgage Loan for such Due Period (such difference, "Compensating
Interest").
REVOLVING PERIOD AND AMORTIZATION PERIOD; RETAINED INTEREST
If the related Prospectus Supplement so provides, there may be a period
commencing on the date of issuance of a Class or Classes of Notes and/or
Certificates of a Series and ending on the date set forth in the related
Prospectus Supplement (each, a "Revolving Period") during which limited or no
principal payments will be made to one or more Classes of Notes or Certificates
of the related Series as are identified in such Prospectus Supplement. Some or
all collections of principal otherwise allocated to such Classes of Notes or
Certificates may be (i) utilized during the Revolving Period to acquire
additional Mortgage Assets which satisfy the criteria specified above and the
criteria set forth in the related Prospectus Supplement, (ii) held in an account
and invested in Permitted Investments for later distribution to Securityholders,
(iii) applied to those Notes or Certificates for such Series, if any, specified
in the related Prospectus Supplement as then are in amortization, or (iv)
otherwise applied as specified in the related Prospectus Supplement.
An "Amortization Period" is the period during which an amount of
principal is payable to Holders of a Series which, during the Revolving Period,
were not otherwise entitled to such payments. If so specified in the related
Prospectus Supplement, during an Amortization Period all or a portion of
principal collections on the Mortgage Loans may be applied as specified above
for a Revolving Period and, to the extent not so applied, will be distributed to
the Classes of Notes or Certificates for such Series specified in the related
Prospectus Supplement as then being entitled to payments of principal. In
addition, if so specified in the related Prospectus Supplement, amounts
deposited in certain accounts for the benefit of one or more Classes of Notes or
Certificates for such Series may be released from time to time or on a specified
date and applied as a payment of principal on such Classes of Notes or
Certificates. The related Prospectus Supplement will set forth the circumstances
which will result in the commencement of an Amortization Period.
Each Series which has a Revolving Period may also issue to the
Representative or one of its affiliates a certificate evidencing an undivided
beneficial interest (a "Retained Interest") in such Series not represented by
the other Securities issued by the Representative. As further described in the
related Prospectus Supplement, the value of such Retained Interest will
fluctuate as the amount of Notes and Certificates of the related Series of
Securities outstanding is reduced.
BOOK-ENTRY REGISTRATION
If so specified in the related Prospectus Supplement, the Certificates
and/or Notes of a Series initially will be registered in the name of Cede, the
nominee of DTC. DTC is a limited purpose trust company organized under the laws
of the State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the Uniform Commercial Code ("UCC") and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Securities Exchange Act of 1934, as amended. DTC was created to hold securities
for its participating organizations ("Participants") and facilitate the
clearance and settlement of securities transactions between Participants through
electronic book-entry changes in their accounts, thereby eliminating the need
for physical movement of certificates. Participants include securities brokers
and dealers, banks, trust companies and clearing corporations and may include
certain other organizations. Indirect access to the DTC system also is available
to others such as brokers, dealers, banks and trust companies that clear through
or maintain a custodial relationship with a Participant, either directly or
indirectly ("Indirect Participant").
Under a book-entry format, Certificateholders and/or Noteholders, as
applicable, that are not Participants or Indirect Participants but desire to
purchase, sell or otherwise transfer ownership of Certificates and/or Notes of a
Series registered in the name of Cede, as nominee of DTC, may do so only through
Participants and Indirect Participants. In addition, such Securityholders will
receive all distributions of principal of and interest on the Securities and
reports relating to the Securities from the Trustee through DTC and its
Participants. Under a book-entry format, Securityholders will receive payments
and reports relating to the Securities after the related Remittance Date
because, while payments and such reports are required to be forwarded to Cede,
as nominee for DTC, on each such date, DTC will forward such payments and
reports to its Participants which thereafter will be required to forward them to
Indirect Participants or Securityholders. Unless and until Definitive Securities
are issued, it is anticipated that the only Securityholder will be Cede, as
nominee of DTC, and that the beneficial holders of Securities will not be
recognized by the Trustee as Securityholders under the Agreement. The beneficial
holders of such Certificates and/or Notes of a Series will only be permitted to
exercise the rights of Certificateholders and/or Noteholders, as applicable,
under the applicable Agreement indirectly through DTC and its Participants who
in turn will exercise their rights through DTC.
Under the rules, regulations and procedures creating and affecting DTC
and its operations, DTC is required to make book-entry transfers among
Participants on whose behalf it acts with respect to the Securities and is
required to receive and transmit reports and payments of principal of and
interest on the Securities. Participants and Indirect Participants with which
Securityholders have accounts with respect to the Securities similarly are
required to make book-entry transfers and receive and transmit such reports and
payments on behalf of their respective Securityholders. Accordingly, although
Securityholders will not possess Securities, the rules provide a mechanism by
which Securityholders will receive distributions and reports and will be able to
transfer their interests.
Unless and until Definitive Securities are issued, Securityholders who
are not Participants may transfer ownership of Securities only through
Participants by instructing such Participants to transfer Securities, by
book-entry transfer, through DTC for the account of the purchasers of such
Securities, which account is maintained with their respective Participants.
Under the Rules and in accordance with DTC's normal procedures, transfers of
ownership of Securities will be executed through DTC and the accounts of the
respective Participants at DTC will be debited and credited. Similarly, the
respective Participants will make debits or credits, as the case may be, on
their records on behalf of the selling and purchasing Securityholders.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a
Securityholder to pledge Securities to persons or entities that do not
participate in the DTC system, or otherwise take actions in respect of such
Securities may be limited due to the lack of a physical certificate for such
Securities.
DTC in general advises that it will take any action permitted to be
taken by a Securityholder under an Agreement only at the direction of one or
more Participants to whose account with DTC the Securities are credited.
Additionally, DTC in general advises that it will take such actions with respect
to specified percentages of the Securityholders only at the direction of and on
behalf of Participants whose holdings include current principal amounts of
outstanding Securities that satisfy such specified percentages. DTC may take
conflicting actions with respect to other current principal amounts of
outstanding Securities to the extent that such actions are taken on behalf of
Participants whose holdings include such current principal amounts of
outstanding Securities.
Any Notes and/or Certificates initially registered in the name of
Cede, as nominee of DTC, will be issued in fully registered, certificated form
to Securityholders or their nominees ("Definitive Securities"), rather than to
DTC or its nominee only under the events specified in the related Agreement and
described in the related Prospectus Supplement. Upon the occurrence of any of
the events specified in the related Agreement and Prospectus Supplement, DTC
will be required to notify all Participants of the availability through DTC of
Definitive Securities. Upon surrender by DTC of the certificates and/or notes
representing the Securities and instruction for re-registration, the Trustee
will issue the Notes and/or Certificates in the form of Definitive Securities,
and thereafter the Trustee will recognize the holders of such Definitive
Securities as Securityholders. Thereafter, payments of principal of and interest
on the Securities will be made by the Trustee directly to Securityholders in
accordance with the procedures set forth herein and in the related Agreement.
The final distribution of any Security (whether Definitive Securities or
Securities registered in the name of Cede), however, will be made only upon
presentation and surrender of such Securities on the final Remittance Date at
such office or agency as is specified in the notice of final payment to
Securityholders.
CREDIT ENHANCEMENT
GENERAL
Credit enhancement may be provided with respect to one or more Classes
of a Series of Securities or with respect to the Mortgage Assets in the related
Trust. Credit enhancement may be in the form of (i) the subordination of one or
more Classes of the Notes and/or Certificates of such Series, (ii) the use of a
Guaranty Insurance Policy, Spread Amount, Mortgage Pool Insurance Policy,
Special Hazard Insurance Policy, Bankruptcy Bond, Reserve Accounts, Supplemental
Interest Payments, a letter of credit, a limited financial guaranty insurance
policy, a Guaranty of The Money Store, other third party guarantees or maturity
protection, derivative instruments, another method of credit enhancement
described in the related Prospectus Supplement, or the use of a cross-support
feature, or (iii) any combination of the foregoing. Credit enhancement will not
provide protection against all risks of loss and will not guarantee repayment of
the entire principal balance of the Securities and interest thereon. If losses
occur which exceed the amount covered by credit enhancement or which are not
covered by the credit enhancement, holders of one or more Classes of Securities
will bear their allocable share of deficiencies. If a form of credit enhancement
applies to several Classes of Securities, and if principal payments equal to the
aggregate principal balances of certain Classes will be distributed prior to
such distributions to other Classes, the Classes which receive such
distributions at a later time are more likely to bear any losses which exceed
the amount covered by credit enhancement. Coverage under any credit enhancement
may be canceled or reduced by the Master Servicer or the Representative if such
cancellation or reduction would not adversely affect the rating or ratings of
the related Securities. The Trustee of the related Trust will have the right to
sue providers of credit enhancement if a default is made on a required payment.
SUBORDINATION
All Classes of Certificates are Subordinated in right of payment to any
Class of Notes in a given Series to the extent described in the related
Prospectus Supplement. To enhance the likelihood of regular receipt by holders
of Senior Certificates or Senior Notes, as the case may be, of the full amount
of payments which they would be entitled to receive in the absence of any losses
or delinquencies, if so specified in the related Prospectus Supplement,
distributions of scheduled principal, Principal Prepayments, interest or any
combination thereof that otherwise would have been payable to one or more
Classes of Subordinated Certificates or Subordinated Notes, as the case may be,
of a Series will instead be payable to holders of one or more Classes of Senior
Certificates or Senior Notes, as the case may be, under the circumstances and to
the extent specified in the Prospectus Supplement. If specified in the related
Prospectus Supplement, the holders of Senior Certificates or Senior Notes, as
the case may be, will receive the amounts of principal and/or interest due to
them on each Remittance Date, out of the funds available for distribution on
such date in the related Distribution Account, prior to any such distribution
being made to holders of the related Subordinated Certificates or Subordinated
Notes, a the case may be, in each case under the circumstances and subject to
the limitations specified in the Prospectus Supplement. The protection afforded
to the holders of Senior Certificates or Senior Notes, as the case may be,
through subordination also may be accomplished by first allocating certain types
of losses or delinquencies to the related Subordinated Certificates or
Subordinated Notes, as the case may be, to the extent described in the related
Prospectus Supplement. If aggregate losses and delinquencies in respect of such
Mortgage Loans were to exceed the total amounts payable and available for
distribution to holders of Subordinated Certificates or Subordinated Notes, as
the case may be, or, if applicable, were to exceed the specified maximum amount,
holders of Senior Certificates or Senior Notes, as the case may be, would
experience losses on the Securities.
In addition to or in lieu of the foregoing, if so specified in the
Prospectus Supplement, all or any portion of distributions otherwise payable to
holders of Subordinated Certificates or Subordinated Notes, as the case may be,
on any Remittance Date may instead be deposited into one or more Reserve
Accounts established and maintained with the Trustee. If so specified in the
Prospectus Supplement, such deposits may be made on each Remittance Date, on
each Remittance Date for specified periods or until the balance in the Reserve
Account has reached a specified amount and, following payments from the Reserve
Account to holders of Senior Certificates or Senior Notes, as the case may be,
or otherwise, thereafter to the extent necessary to restore the balance in the
Reserve Account to required levels, in each case as specified in the Prospectus
Supplement. If so specified in the related Prospectus Supplement, amounts on
deposit in the Reserve Account may be released to the holders of the Class of
Securities specified in the Prospectus Supplement at the times and under the
circumstances specified in the Prospectus Supplement. See "--Reserve Accounts"
below.
If so specified in the related Prospectus Supplement, the same Class of
Securities may be Senior Certificates or Senior Notes, as the case may be, with
respect to certain types of payments or certain types of losses or delinquencies
and Subordinated Certificates or Subordinated Notes, as the case may be, with
respect to other types of payment or types of losses or delinquencies. If
specified in the related Prospectus Supplement, various Classes of Senior
Certificates or Senior Notes, as the case may be, and Subordinated Certificates
or Subordinated Notes, as the case may be, may themselves be subordinate in
their right to receive certain distributions to other Classes of Senior and
Subordinated Certificates or Subordinated Notes, as the case may be,
respectively, through a cross support mechanism or otherwise. As between Classes
of Senior Certificates or Senior Notes, as the case may be, and as between
Classes of Subordinated Certificates or Subordinated Notes, as the case may be,
distributions may be allocated among such Classes (i) in the order of their
scheduled final Remittance Dates, (ii) in accordance with a schedule or formula,
(iii) in relation to the occurrence of events, or (iv) otherwise, in each case
as specified in the Prospectus Supplement. The related Prospectus Supplement
will set forth information concerning the amount of subordination of a Class or
Classes of Subordinated Certificates or Subordinated Notes, as the case may be,
in a Series, the circumstances in which such subordination will be applicable,
the manner, if any, in which the amount of subordination will decrease over
time, the manner of funding any Reserve Account, and the conditions under which
amounts in any such Reserve Account will be used to make distributions to Senior
Holders of Senior Certificates or Senior Notes, as the case may be, or released
to Holder of Subordinated Certificates or Subordinated Notes, as the case may
be, from the related Trust.
GUARANTY INSURANCE POLICIES
If so specified in the related Prospectus Supplement, a Guaranty
Insurance Policy may be obtained and maintained for any Class or Series of
Certificates and/or Notes. The issuer of any Guaranty Insurance Policy (a
"Security Guaranty Insurer") will be described in the related Prospectus
Supplement. A copy of any such Guaranty Insurance Policy will be attached as an
exhibit to the related Prospectus Supplement.
If so specified in the related Prospectus Supplement, a Guaranty
Insurance Policy will unconditionally and irrevocably guarantee to
Securityholders that an amount equal to each full and complete Insured Payment
will be received by an agent of the Trustee (an "Insurance Paying Agent") on
behalf of Securityholders, for distribution by the Trustee to each
Securityholder. The "Insured Payment" will equal the full amount of the
distributions of principal and interest to which Securityholders are entitled
under the related Agreement plus any other amounts specified therein or in the
related Prospectus Supplement.
The specific terms of any Guaranty Insurance Policy will be as set
forth in the related Prospectus Supplement. Guaranty Insurance Policies may have
limitations including (but not limited to) limitations on the insurer's
obligation to guarantee the Master Servicer's obligation to repurchase or
substitute for any Mortgage Loans, to guarantee any specified rate of
prepayments or to provide funds to redeem Securities on any specified date.
Subject to the terms of the related Agreement, the Security Guaranty
Insurer may be subrogated to the rights of each Securityholder to receive
payments under the Securities to the extent of any payments by such Security
Guaranty Insurer under the related Guaranty Insurance Policy.
SPREAD AMOUNT
If so specified in the related Prospectus Supplement, certain Classes
of Securities may be entitled to receive limited acceleration of principal
relative to the amortization of the related Mortgage Assets. The accelerated
amortization will be achieved by applying certain excess interest collected on
the Mortgage Assets to the payment of principal on such Classes of Securities.
This acceleration feature is intended to create an amount (the "Spread Amount"),
resulting from, and generally equal to, the excess of the aggregate principal
balances of the applicable Mortgage Assets over the principal balances of the
applicable Classes of Securities. Once the required Spread Amount is reached,
and subject to the provisions described in the next sentence and in the related
Prospectus Supplement, the acceleration feature will cease, unless necessary to
maintain the required level of the Spread Amount. The applicable Agreement will
provide that, subject to certain floors, caps and triggers, the required level
of the Spread Amount may increase or decrease over time. An increase would
result in a temporary period of accelerated amortization of the applicable
Classes of Securities to increase the actual level of the Spread Amount to its
required level; a decrease would result in a temporary period of decelerated
amortization to reduce the actual level of the Spread Amount to its required
level. An Agreement also may provide that after one or more Classes of
Securities have been paid to the required level of the Spread Amount, excess
interest, together with certain other excess amounts, may be applied to make-up
shortfalls in, or accelerate the amortization of, other Classes of Securities.
MORTGAGE POOL INSURANCE POLICIES
If specified in the Prospectus Supplement related to any Pool of
Mortgage Loans, a Mortgage Pool Insurance Policy issued by the insurer (the
"Pool Insurer") named in such Prospectus Supplement will be obtained and
maintained for each Series pertaining to Mortgage Loans. Each Mortgage Pool
Insurance Policy will, subject to the limitations described below or in the
related Prospectus Supplement, cover loss by reason of default in payment on the
related Mortgage Loans in the Pool in an amount initially equal to a specified
percentage of the aggregate principal balance of all Mortgage Loans included in
the Pool as of the Cut-off Date or such other date as is specified in such
Prospectus Supplement. The Mortgage Pool Insurance Policies, however, are not
blanket policies against loss, since claims thereunder may only be made
respecting particular defaulted Mortgage Loans and only upon satisfaction of
certain conditions precedent described below. The Mortgage Pool Insurance
Policies generally will not cover losses due to a failure to pay or denial of a
claim under a Primary Mortgage Insurance Policy.
A Mortgage Pool Insurance Policy generally will not insure (and many
Primary Mortgage Insurance Policies do not insure) against loss sustained by
reason of a default arising from, among other things, (i) fraud or negligence in
the origination or servicing of a Mortgage Loan, including misrepresentation by
the Mortgagor, the originator or persons involved in the origination thereof, or
(ii) failure to construct a Mortgaged Property in accordance with plans and
specifications. If so specified in the related Prospectus Supplement, an
endorsement to the Mortgage Pool Insurance Policy, a bond or other credit
support may cover fraud in connection with the origination of Mortgage Loans. If
so specified in the related Prospectus Supplement, a failure of coverage
attributable to an event specified in clause (i) or (ii) above might result in a
breach of the Master Servicer's representations described above and, in such
event, might give rise to an obligation on the part of the Master Servicer to
purchase the defaulted Mortgage Loan if the breach cannot be cured by the Master
Servicer. No Mortgage Pool Insurance Policy will cover (and many Primary
Mortgage Insurance Policies do not cover) a claim in respect of a defaulted
Mortgage Loan occurring when the servicer of such Mortgage Loan, at the time of
default or thereafter, was not approved by the applicable insurer.
The original amount of coverage under each Mortgage Pool Insurance
Policy will be reduced over the life of the related Securities by the aggregate
dollar amount of claims paid less the aggregate of the net amounts realized by
the Pool Insurer upon disposition of all foreclosed properties. The amount of
claims paid will include certain expenses incurred by the Master Servicer as
well as accrued interest on delinquent Mortgage Loans to the date of payment of
the claim. Accordingly, if aggregate net claims paid under any Mortgage Pool
Insurance Policy reach the original policy limit, coverage under that Mortgage
Pool Insurance Policy will be exhausted and any further losses will be borne by
the Securityholders.
The terms of any pool insurance policy relating to a pool of Contracts
will be described in the related Prospectus Supplement.
SPECIAL HAZARD INSURANCE POLICIES
If specified in the related Prospectus Supplement, a separate Special
Hazard Insurance Policy will be obtained for the Pool and will be issued by the
insurer (the "Special Hazard Insurer") named in such Prospectus Supplement. Each
Special Hazard Insurance Policy will, subject to limitations described below,
protect holders of the related Securities from (i) loss by reason of damage to
Mortgaged Properties caused by certain hazards (including earthquakes and, to a
limited extent, tidal waves and related water damage) not insured against under
the standard form of hazard insurance policy for the respective states in which
the Mortgaged Properties are located or under a flood insurance policy if the
Mortgaged Property is located in a federally designated flood area, and (ii)
loss caused by reason of the application of the coinsurance clause contained in
hazard insurance policies. See "The Agreement-- Hazard Insurance." No Special
Hazard Insurance Policy will cover losses occasioned by war, civil insurrection,
certain governmental action, errors in design, faulty workmanship or materials
(except under certain circumstances), nuclear reaction, flood (if the Mortgaged
Property is located in a federally designated flood area), chemical
contamination and certain other risks. The amount of coverage under any Special
Hazard Insurance Policy will be specified in the related Prospectus Supplement.
Each Special Hazard Insurance Policy will provide that no claim may be paid
unless hazard and, if applicable, flood insurance on the property securing the
Mortgage Loan has been kept in force and other protection and preservation
expenses have been paid.
Since each Special Hazard Insurance Policy will be designed to permit
full recovery under the Mortgage Pool Insurance Policy in circumstances in which
such recoveries would otherwise be unavailable because property has been damaged
by a cause not insured against by a standard hazard policy and thus would not be
restored, each Agreement will provide that, if the related Mortgage Pool
Insurance Policy shall have been terminated or been exhausted through payment of
claims, the Master Servicer will be under no further obligation to maintain such
Special Hazard Insurance Policy.
The terms of any Special Hazard Insurance Policy relating to a pool of
Contracts will be described in the related Prospectus Supplement.
BANKRUPTCY BONDS
If specified in the related Prospectus Supplement, a Bankruptcy Bond
for proceedings under the federal Bankruptcy Code will be issued by an insurer
named in such Prospectus Supplement. Each Bankruptcy Bond will cover certain
losses resulting from a reduction by a bankruptcy court of scheduled payments of
principal and interest on a Mortgage Loan or a reduction by such court of the
principal amount of a Mortgage Loan and will cover certain unpaid interest on
the amount of such a principal reduction from the date of the filing of a
bankruptcy petition. The required amount of coverage under each Bankruptcy Bond
will be set forth in the related Prospectus Supplement. To the extent specified
in an applicable Prospectus Supplement, the Master Servicer may deposit cash, an
irrevocable letter of credit or any other instrument acceptable to each
nationally recognized rating agency rating the Securities of the related Series
in the Trust to provide protection in lieu of or in addition to that provided by
a Bankruptcy Bond. See "Certain Legal Aspects of the Mortgage
Loans--Anti-Deficiency Legislation and Other Limitations on Lenders."
The terms of any Bankruptcy Bond relating to a pool of Contracts will
be described in the related Prospectus Supplement.
RESERVE ACCOUNTS
If specified in a Prospectus Supplement, cash, U.S. Treasury
securities, instruments evidencing ownership of principal or interest payments
thereon, letters of credit, demand notes, certificates of deposit or a
combination thereof in the aggregate amount specified in the Prospectus
Supplement may be deposited by the Master Servicer or Representative on the date
specified in the Prospectus Supplement in one or more Reserve Accounts
established with the Trustee. In addition to or in lieu of the foregoing, if so
specified in such Prospectus Supplement, all or any portion of distributions
otherwise payable to holders of Subordinated Certificates on any Remittance Date
may instead be deposited into such Reserve Accounts. Such deposits may be made
on the date specified in the Prospectus Supplement, which may include each
Remittance Date, each Remittance Date for specified periods or until the balance
in the Reserve Account has reached a specified amount. See "--Subordination"
above.
The cash and other assets in the Reserve Accounts will be used to
enhance the likelihood of timely payment of principal of, and interest on, or,
if so specified in the Prospectus Supplement, to provide additional protection
against losses in respect of, the assets in the related Trust, to pay the
expenses of the Trust or for such other purposes specified in the Prospectus
Supplement. Any cash in a Reserve Account and the proceeds upon maturity or
liquidation of any other asset or instrument therein will be invested, to the
extent acceptable to the applicable Rating Agency, in obligations of the United
States and certain agencies thereof, certificates of deposit, certain commercial
paper, time deposits and bankers acceptances sold by eligible commercial banks,
certain repurchase agreements of United States government securities with
eligible commercial banks and certain other instruments acceptable to the
applicable Rating Agency ("Permitted Investments"). Any asset or instrument
deposited in the Reserve Account generally will name the Trustee, in its
capacity as trustee for the Securityholders, as beneficiary and will be issued
by an entity acceptable to the applicable Rating Agency. Additional information
with respect to such instruments deposited in the Reserve Accounts will be set
forth in the Prospectus Supplement.
Any amounts so deposited and payments on assets and instruments
deposited in a Reserve Account will be available for withdrawal from such
Reserve Account for distribution to Securityholders for the purposes, in the
manner and at the times specified in the Prospectus Supplement.
SUPPLEMENTAL INTEREST PAYMENTS
If so specified in the Prospectus Supplement, one or more Classes of
Securities may be entitled to receive supplemental interest payments under
specified circumstances. Supplemental interest payments will be available to
fund some or all of the difference, if any, between the interest owed to a Class
of Securities on a Remittance Date and the interest that would be available to
pay such interest assuming no defaults or delinquencies on the Mortgage Assets.
Such differences may result if the interest rates on the applicable Classes of
Securities are based upon an index that differs from the index used in
determining the interest rates on the Mortgage Assets. Except as otherwise
provided in a Prospectus Supplement, supplemental interest payments will not be
available to fund shortfalls resulting from delinquencies or defaults on the
Mortgage Assets.
MATURITY PROTECTION
If so specified in the Prospectus Supplement, one or more Classes of
Securities may be entitled to third-party payments to help provide that the
holders of such Securities receive their unpaid principal on or prior to a
specified date.
OTHER INSURANCE, GUARANTEES, SWAPS, AND SIMILAR INSTRUMENTS OR AGREEMENTS
If specified in the related Prospectus Supplement, a Trust may include
in lieu of some or all of the foregoing or in addition thereto letters of
credit, financial guaranty insurance policies, a Guaranty of The Money Store,
other third party guarantees, limited guarantees or insurance from agencies or
instrumentalities of the United States, and other arrangements for maintaining
timely payments or providing additional protection against losses on the assets
included in such Trust, paying administrative expenses, or accomplishing such
other purpose as may be described in the Prospectus Supplement. The Trust may
include a guaranteed investment contract or reinvestment agreement pursuant to
which funds held in one or more accounts will be invested at a specified rate.
If any Class of Securities has a floating interest rate, or if any of
the Mortgage Assets has a floating interest rate, the Trust may include an
interest rate swap contract, an interest rate cap agreement or similar hedge
contract providing limited protection against interest rate risks. If provided
in the related Prospectus Supplement, interest and/or principal on one or more
Classes of the Securities of a Series may be paid to Holders thereof in a
currency other than U.S. dollars. If so provided, the Trust may, in connection
therewith, enter into one or more currency rate swaps to provide limited
protection against foreign currency rate fluctuation risks. One or more Classes
of Securities also may be issued in conjunction with a put or call feature
entitling (in the case of a put) or obligating (in the case of a call) the
applicable Securityholders to sell some or all of its Securities to the party
named in the applicable Prospectus Supplement on the date or dates set forth
therein. Any such arrangements must be acceptable to each nationally recognized
rating agency that provides a rating for the related Series of Securities (the
"Rating Agency"). Additionally, to the extent a significant portion of the
Mortgage Loans underlying a given Series of Securities consists of FHA Loans,
the related Prospectus Supplement will describe the features of any related
credit support including, but not limited to, that provided by the FHA, if any.
CROSS SUPPORT
If specified in the related Prospectus Supplement, the beneficial
ownership of separate groups of assets included in a Trust may be evidenced by
separate Classes of the related Series of Securities. In such case, credit
support may be provided by a cross-support feature which requires that
distributions be made with respect to Securities evidencing a beneficial
ownership interest in other asset groups within the same Trust. The Prospectus
Supplement for a Series which includes a cross-support feature will describe the
manner and conditions for applying such cross-support feature. If specified in
the related Prospectus Supplement, the coverage provided by one or more forms of
credit support may apply concurrently to two or more separate Trusts. If
applicable, the Prospectus Supplement will identify the Trusts to which such
credit support relates and the manner of determining the amount of the coverage
provided thereby and of the application of such coverage to the identified
Trusts.
MATURITY, PREPAYMENT AND YIELD CONSIDERATIONS
The yields to maturity of the Securities will be affected by the amount
and timing of principal payments on or in respect of the Mortgage Assets
included in the related Trusts, the allocation of available funds to various
Classes of Securities, the Pass-Through Rate or Interest Rate for various
Classes of Securities and the purchase price paid for the Securities.
The original terms to maturity of the Mortgage Loans in a given Pool
will vary depending upon the type of Mortgage Loans included therein. Each
Prospectus Supplement will contain information with respect to the type and
maturities of the Mortgage Loans in the related Pool. Single Family Loans,
Cooperative Loans and Contracts generally may be prepaid without penalty in full
or in part at any time, although a prepayment fee or penalty may be imposed in
connection therewith. Multifamily Loans may prohibit prepayment for a specified
period after origination, may prohibit partial prepayments entirely, and may
require the payment of a prepayment fee or penalty upon prepayment in full or in
part.
In general, prepayment of Mortgage Loans is likely to increase when the
level of prevailing interest rates declines significantly, although the
prepayment rate is influenced by a number of other factors, some of which are
described below. Similarly, when the level of prevailing interest rates rises,
prepayment rates may decrease. No prediction can be made as to the prepayment
rate that the Mortgage Loans will actually experience.
Generally, junior mortgage loans have smaller average principal
balances than senior or first mortgage loans and are not viewed by borrowers as
permanent financing. Accordingly, Mortgage Loans which are junior mortgage loans
may experience a higher rate of prepayment than Mortgage Loans which represent
first liens. In addition, any future limitations on the right of borrowers to
deduct interest payments on Mortgage Loans for Federal income tax purposes may
result in a higher rate of prepayment of the Mortgage Loans. The obligation of
the Master Servicer to enforce due-on-sale provisions (described below) of the
Mortgage Loans may also increase prepayments. The prepayment experience of the
Pools may be affected by a wide variety of factors, including general and local
economic conditions, mortgage market interest rates, the availability of
alternative financing and homeowner mobility. The Representative is unaware of
any reliable studies that would project the prepayment risks associated with the
Mortgage Loans based upon current interest rates and economic conditions or the
historical prepayment experience of The Money Store's and its affiliates'
portfolios of Mortgage Loans.
The secured conventional Mortgage Loans and Contracts generally will
contain due-on-sale provisions permitting the mortgagee or holder of the
Contract to accelerate the maturity of the Mortgage Loan or Contract upon sale
or certain transfers by the borrower of the underlying Mortgaged Property. The
Master Servicer generally will enforce any due-on-sale or due-on-encumbrance
clause, to the extent it has knowledge of the conveyance or further encumbrance
or the proposed conveyance or proposed further encumbrance of the Mortgaged
Property and reasonably believes that it is entitled to do so under applicable
law; provided, however, that the Master Servicer will not take any enforcement
action that would impair or threaten to impair any recovery under any related
insurance policy. See "The Agreement--Collection Procedures" and "Certain Legal
Aspects of the Mortgage Loans" for a description of certain provisions of each
Agreement and certain legal developments that may affect the prepayment
experience on the Mortgage Loans.
Greater than anticipated prepayments of principal will increase the
yield on Securities purchased at a price less than par. Similarly, greater than
anticipated prepayments of principal will decrease the yield on Securities
purchased at a price greater than par. The effect on an investor's yield of
principal prepayments on the Mortgage Loans occurring at a rate that is faster
(or slower) than the rate anticipated by the investor in the period immediately
following the issuance of the applicable Class of Securities may not be offset
by a subsequent like reduction (or increase) in the rate of principal payments.
The weighted average lives of Securities will also be affected by the
amount and timing of delinquencies and defaults on the Mortgage Loans and the
liquidations of defaulted Mortgage Loans. Delinquencies and defaults will
generally slow the rate of payment of principal to the Securityholders. However,
this effect will be offset to the extent that lump sum recoveries on defaulted
Mortgage Loans and foreclosed Mortgaged Properties result in principal payments
on the Securities faster than otherwise scheduled.
When a full prepayment or Curtailment occurs on a Mortgage Loan, the
Mortgagor will be charged interest on the principal amount of the Mortgage Loan
so prepaid only for the number of days in the month actually elapsed up to the
date of the prepayment rather than for a full month. Interest shortfalls also
could result from the application of the Soldiers' and Sailors' Civil Relief Act
of 1940, as amended (the "Relief Act"), as described under "Certain Legal
Aspects of the Mortgage Loans-- Soldiers' and Sailors' Civil Relief Act" herein.
If so specified in the related Prospectus Supplement, in the event that less
than 30 days' interest is collected on a Mortgage Loan during a Due Period,
whether due to prepayment in full or a Curtailment, the Master Servicer will be
obligated to pay Compensating Interest with respect thereto, but only to the
extent of the aggregate Servicing Fee and Contingency Fee for the related
Remittance Date. To the extent such shortfalls exceed the amount of Compensating
Interest that the Master Servicer is obligated to pay, and are not otherwise
covered by Insured Payments, the yield on the Securities could be adversely
affected.
Under certain circumstances, the Master Servicer, certain insurers, the
holders of REMIC Residual Certificates or certain other entities specified in
the related Prospectus Supplement may have the option to purchase the Mortgage
Assets and other assets of a Trust, thereby effecting earlier retirement of the
related Series of Securities.
See "The Agreement--Termination; Purchase of Mortgage Loans."
If so specified in the related Prospectus Supplement, the effective
yield to certain Securityholders may be slightly lower than the yield otherwise
produced by the applicable Remittance Rate and purchase price, because while
interest generally will accrue on such Securities from the first day of each
month, the distribution of such interest will not be made earlier than a
specified date in the month following the month of accrual.
In addition, if so specified in the related Prospectus Supplement,
prepayments may result from amounts on deposit, if any, in the Pre-Funding
Account at the end of the Funding Period being applied to the payment of
principal of the Securities.
The Prospectus Supplement relating to a Series of Securities will
discuss in greater detail the effect of the rate and timing of principal
payments (including prepayments) on the yield, weighted average lives and
maturities of such Securities. Factors other than those identified herein and in
the related Prospectus Supplement could significantly affect principal
prepayments at any time and over the lives of the Securities.
THE AGREEMENTS
Set forth below is a summary of certain provisions of each Agreement
which are not described elsewhere in this Prospectus. The summary does not
purport to be complete and is subject to, and qualified in its entirety by
reference to, the provisions of each Agreement. Where particular provisions or
terms used in the Agreements are referred to, such provisions or terms are as
specified in the Agreements.
SALE OF MORTGAGE LOANS
Pursuant to each related Pooling and Servicing Agreement or Sale and
Servicing Agreement, as the case may be, at the time of issuance of Securities
of a Series the Originators and/or The Money Store will sell to the related
Trust, without recourse, all interest of the Originators and/or The Money Store
in each of the Mortgage Assets comprising the assets of such Trust and all
interest in all actual payments collected after the Cut-off Date with respect to
such Mortgage Assets.
In addition, to the extent specified in the related Prospectus
Supplement, the net proceeds received from the sale of the Securities of a given
Series will be applied to the deposit of the Pre-Funded Amount into the
Pre-Funding Account. The aggregate principal balance of additional Mortgage
Assets to be purchased for the related Trust generally will be equal to the
Pre-Funded Amount on the date of the issuance of the related Series. On each
applicable purchase date, the Originators and/or The Money Store will sell to
the related Trust, without recourse, the entire interest of the Originators
and/or The Money Store in the additional Mortgage Assets identified in a
schedule attached to a supplemental conveyance relating to such additional
Mortgage Assets executed on such date by the Originators and/or The Money Store.
In connection with each purchase of additional Mortgage Assets, the related
Trust will be required to pay to the Originators and/or The Money Store a cash
purchase price equal to the outstanding principal balance of each additional
Mortgage Asset as of its related Cut-off Date. The purchase price will be
withdrawn from the Pre-Funding Account and paid to the Originators and/or The
Money Store so long as the representations and warranties set forth in
"--Representations and Warranties" below apply to each additional Mortgage Asset
to be conveyed, and the conditions set forth in the paragraph below and in the
related Agreement are satisfied. The Originators and/or The Money Store will
convey the additional Mortgage Assets to the related Trust on the applicable
purchase date pursuant to the Agreement.
Any conveyance of additional Mortgage Assets will be subject to the
following conditions, among others specified in the related Prospectus
Supplement: (i) each such additional Mortgage Asset must satisfy the eligibility
criteria specified in the preceding paragraph as of its applicable Cut-off Date
and such additional criteria as may be specified in the related Prospectus
Supplement; (ii) if and to the extent specified in the related Prospectus
Supplement, the third-party credit enhancement provider, if any, shall have
approved the transfer of such additional Mortgage Assets to the related Trust;
(iii) neither the Originator nor The Money Store will have selected such
additional Mortgage Assets in a manner that either believes is adverse to the
interests of Securityholders; and (iv) the Originator and The Money Store will
deliver certain opinions of counsel to the Trustee(s) and the Rating Agencies
with respect to the validity of the conveyance of such additional Mortgage
Assets.
In connection with such sales of the Mortgage Loans, the Representative
will be required to deliver to the Trustee certain specified items (collectively
with respect to each Mortgage Loan, the "Trustee's Mortgage File") with respect
to each Mortgage Loan. Unless otherwise specified in the related Prospectus
Supplement, each Trustee's Mortgage File will be required to include the
following, together with certain other specified items: (a) The original
Mortgage Note; (b) either: (i) the original Mortgage, with evidence of recording
thereon or (ii) a certified copy of the Mortgage where the original has been
transmitted for recording or has been lost; and (c) an assignment of the
Mortgage Loan from the applicable Originator to either the related Trustee or
Initial Co-Trustee under the Agreement with evidence of recording thereon
(unless opinions of counsel are delivered, satisfactory to the Rating Agencies
and the Security Guaranty Insurer, if any, to the effect that recordation of
such assignments is not required in the relevant jurisdictions to protect the
interests of the Trustee in the Mortgage Loans).
The Trustee will be required to review each such Trustee's Mortgage
File to ascertain that all required documents have been executed and received.
If the Security Guaranty Insurer, if any, or the Trustee finds any document
constituting a part of a Trustee's Mortgage File which is not properly executed,
has not been received, is unrelated to the Mortgage Loans of the related Trust
or does not conform in a material respect to the description thereof provided on
behalf of the Representative, the Securities Guaranties Insurer, if any, or the
Trustee is required promptly to notify the Master Servicer, The Money Store, and
the Trustee or the Security Guaranty Insurer, if any, respectively. The Money
Store is required to use reasonable efforts to remedy a material defect in a
document constituting part of a Trustee's Mortgage File of which it is so
notified. If, however, within 60 days after the Trustee's notice to it
respecting such defect The Money Store has not remedied the defect and the
defect materially and adversely affects the interest of the Trust in the related
Mortgage Loan or the interests of the Security Guaranty Insurer, if any, The
Money Store is required to (i) substitute in lieu of such Mortgage Loan a
substitute Mortgage Loan which qualifies for substitution under the Agreement (a
"Qualified Substitute Mortgage Loan") and, if the then outstanding principal
balance of such Qualified Substitute Mortgage Loan is less than the principal
balance of such Mortgage Loan as of the date of such substitution, deposit in
the related Principal and Interest Account (as defined herein under "--Payments
on the Mortgage Loans") the amount of such shortfall in principal balance
arising from such substitution (the "Substitution Adjustment") or (ii) purchase
such Mortgage Loan at a price equal to the principal balance of such Mortgage
Loan as of the date of purchase, plus 30 days' interest on such principal
balance, computed at the Adjusted Mortgage Loan Remittance Rate (as defined in
the related Prospectus Supplement) as of the next succeeding Determination Date,
plus any accrued unpaid Servicing Fees and Contingency Fees (each as defined
herein under "--Servicing and Other Compensation and Payment of Expenses") and
certain other amounts advanced by and reimbursable to the Master Servicer, plus
the interest portion of any unreimbursed Insured Payments made by the Security
Guaranty Insurer, if any, related to such Mortgage Loan, which purchase price
will be deposited in the Principal and Interest Account and delivered to the
Trustee on the next succeeding Determination Date, except for the amount
described above relating to unreimbursed Insured Payments, if any, which shall
be paid directly to the Security Guaranty Insurer; provided, however, that, if a
REMIC election has been made for the related Trust, The Money Store may not take
any such action unless it has theretofore caused to be delivered to the Trustee
an opinion of counsel knowledgeable in federal income tax matters (an "Opinion
of Counsel") which states that such a purchase or substitution would not
constitute a "prohibited transaction," as defined in Section 860F of the Code (a
"Prohibited Transaction").
REPRESENTATIONS AND WARRANTIES
The Representative will represent, among other things, that as of the
related Cut-off Date as to each Mortgage Loan sold to the related Trust, the
information provided with respect to such Mortgage Loan was true and correct;
all of the original or certified documentation constituting the Trustee's
Mortgage Files (including all material documents related thereto) has been or
will be delivered to the Trustee or a custodian on its behalf (the "Custodian");
each Mortgage was a valid and subsisting lien of record on the Mortgaged
Property; immediately prior to such transfer and assignment, the Originators
were the sole owners of each Mortgage Loan conveyed by them; and as of the
related Cut-off Date, no Mortgage Loan will be more than 59 days delinquent in
payment, no Mortgage Loan originated within 12 months of the related Cut-off
Date will be delinquent more than 59 days as measured at the end of any month
during the 12 months immediately preceding such Cut-off Date, and with respect
to Mortgage Loans originated more than 12 months before such Cut-off Date, no
more than the percentage of Mortgage Loans specified in the related Prospectus
Supplement (measured by outstanding principal balance as of such Cut-off Date)
will have been on up to two occasions more than 59 days delinquent as measured
at the end of any month since the inception of each such Mortgage Loan.
Pursuant to the Agreement, upon the discovery by The Money Store, the
Servicer, any Subservicer, the Custodian, the Security Guaranty Insurer, if any,
or the Trustee that any of the representations and warranties contained in the
Agreement have been breached in any material respect as of the related Cut-off
Date, with the result that the interests of the related Trust in the related
Mortgage Loan or the interests of the Security Guaranty Insurer, if any, were
materially and adversely affected, notwithstanding that such representation and
warranty was made to The Money Store's best knowledge, the party discovering
such breach is required to give prompt written notice to the other parties.
Within 60 days of the earlier to occur of The Money Store's discovery or its
receipt of notice of any such breach, The Money Store will be required to cure
promptly such breach in all material respects, or (i) remove such Mortgage Loan
and substitute one or more Qualified Substitute Mortgage Loans or (ii) purchase
such Mortgage Loan, in each case on the same terms and on the same conditions as
described above under "Sale of Mortgage Loans." The obligation of The Money
Store to so substitute or purchase any Mortgage Loan will constitute the sole
remedy respecting a material breach of any such representation or warranty
available to the Securityholders or the Trustee.
PAYMENTS ON THE MORTGAGE LOANS
The Agreement will require the Master Servicer to establish and
maintain one or more principal and interest accounts (each a "Principal and
Interest Account") at one or more institutions designated as a "Designated
Depository Institution" in the Agreement.
All funds in the Principal and Interest Accounts will be required to be
held (i) uninvested, up to the limits insured by the Federal Deposit Insurance
Corporation or (ii) invested in instruments designated as "Permitted
Instruments" in the Agreement. Any investment earnings on funds held in the
Principal and Interest Accounts are for the account of the Master Servicer.
The Master Servicer will be required to deposit or cause to be
deposited in the related Principal and Interest Account (within 24 hours of
receipt) all payments received after the related Cut-off Date on account of
principal and interest on the related Mortgage Loans (but net of the Servicing
Fee and the Contingency Fee with respect to each Mortgage Loan and other
servicing compensation payable to the Master Servicer as permitted by the
Agreement).
Not later than the day of each month preceding a Remittance Date that
is set forth in a Prospectus Supplement (each such day a "Determination Date"),
the Master Servicer will be required to wire transfer to the Trustee the
Available Remittance Amount for deposit in the segregated trust accounts to be
maintained with the Trustee for such purpose (each a "Distribution Account").
Unless otherwise specified in the related Prospectus Supplement, the
"Available Remittance Amount" will be defined in the Agreement to include, with
respect to any Remittance Date, without duplication:
(i) the sum of all amounts received by the Master Servicer or
any Sub-Servicer on the Mortgage Loans (including amounts paid by the
Master Servicer and the Representative and excluding amounts required
to be deposited into any related Reserve Account, amounts paid as
reimbursement to the Master Servicer of advances and amounts recovered
as voidable preferences) during the immediately preceding calendar
month (the "Due Period"), plus
(ii) the amount of any Monthly Advance and Compensating
Interest payments with respect to the Mortgage Loans remitted by the
Master Servicer for such Remittance Date.
The term Available Remittance Amounts will not include Insured
Payments, if any.
GENERAL SERVICING STANDARDS
The Master Servicer will agree to master service the Mortgage Loans in
accordance with the related Agreement and, where applicable, prudent mortgage
servicing standards. "Prudent mortgage servicing standards" generally will
require the Master Servicer to exercise collection and foreclosure procedures
with respect to the Mortgage Loans with the same degree of care and skill that
it would use in master servicing mortgage loans for its own account. Pursuant to
each Agreement, the Master Servicer will be required to make reasonable efforts
to collect all payments called for under the terms of the related Mortgage Loan.
Nonetheless, the Master Servicer, in determining the type of action that is
reasonable to pursue may consider, among other things, the unpaid principal
balance of a Mortgage Loan against the estimated cost of collection or
foreclosure action, the unpaid balance of the related prior mortgage, if any,
the condition and estimated market value ("as is" and "if repaired"), the
estimated marketability of the related Mortgaged Property and the borrower's
ability to repay.
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
The Master Servicer will be entitled to a servicing fee (the "Servicing
Fee") and a contingency fee (the "Contingency Fee") equal to the percentage per
annum specified in the related Prospectus Supplement of the principal balance of
each Mortgage Loan. The Contingency Fee is meant to provide additional servicing
compensation to a successor servicer if The Money Store is replaced as Master
Servicer under the related Agreement. However, as long as The Money Store acts
as Master Servicer, it will be entitled to receive the Contingency Fee, although
such amount is not deemed servicing compensation. Unless otherwise specified in
the related Prospectus Supplement, the Servicing Fee and Contingency Fee will
each be calculated and payable monthly from the interest portion of scheduled
monthly payments, liquidation proceeds and certain other collected proceeds. In
addition, the Master Servicer will be entitled under the Agreement to retain
additional servicing compensation in the form of assumption and other
administrative fees, prepayment penalties and premiums, late payment charges,
interest paid on funds in the Principal and Interest Account, interest paid on
earnings realized on Permitted Instruments, and certain other excess amounts.
The Master Servicer will be required to pay all reasonable and
customary "out-of-pocket" costs and expenses incurred in the performance of its
obligations under the Agreements, including, but not limited to, the cost of (i)
the preservation, restoration and protection of the Mortgaged Property, (ii) any
enforcement or judicial proceedings, including foreclosures, and (iii) the
management and liquidation of Mortgaged Property acquired in satisfaction of the
related Mortgage Loan. Such expenditures may include costs of collection
efforts, reappraisals when a loan is 90 days past due, forced placement of
hazard insurance if a borrower allows his hazard policy to lapse, legal fees in
connection with foreclosure actions, advancing payments on the related senior
mortgage, if any, advances of delinquent property taxes, upkeep and maintenance
of the property if it is acquired through foreclosure and similar types of
expenses. Each such expenditure constitutes a "Servicing Advance." The Master
Servicer will be obligated to make the Servicing Advances incurred in the
performance of its servicing obligations. The Master Servicer will be entitled
to recover Servicing Advances to the extent permitted by the Mortgage Loans or,
if not theretofore recovered from the Mortgagor on whose behalf such Servicing
Advance was made, from Liquidation Proceeds, Released Mortgaged Property
Proceeds, Insurance Proceeds and such other amounts as may be collected by the
Servicer from the Mortgagor or otherwise relating to the Mortgage Loan.
Servicing Advances will be reimbursable to the Servicer from the sources
described above out of the funds on deposit in the Principal and Interest
Account.
HAZARD INSURANCE
The Master Servicer will be required to cause to be maintained fire
and hazard insurance with extended coverage customary in the area where the
Mortgaged Property is located, in an amount which is at least equal to the least
of (i) the outstanding principal balance owing on the Mortgage Loan and the
related senior mortgage, if any, (ii) the full insurable value of the premises
securing the Mortgage Loan, and (iii) the minimum amount required to compensate
for damage or loss on a replacement cost basis. If the Mortgaged Property is in
an area identified in the Federal Register by the Flood Emergency Management
Agency as having special flood hazards (and such flood insurance has been made
available), the Master Servicer will be required to cause to be purchased a
flood insurance policy with a generally acceptable insurance carrier, in an
amount representing coverage not less than the least of (a) the outstanding
principal balance of the Mortgage Loan and the senior lien, if any, (b) the full
insurable value of the Mortgaged Property, or (c) the maximum amount of
insurance available under the National Flood Insurance Act of 1968, as amended.
The Master Servicer will also be required to maintain, to the extent such
insurance is available, on REO Property, fire and hazard insurance in the
applicable amounts described above, liability insurance and, to the extent
required and available under the National Flood Insurance Act of 1968, as
amended, flood insurance in an amount equal to that required above. Any amounts
collected by the Master Servicer or any Sub-Servicer under any such policies
(other than amounts to be applied to the restoration or repair of the Mortgaged
Property, or to be released to the Mortgagor in accordance with customary first
or second mortgage servicing procedures) are required to be deposited in the
Principal and Interest Account.
In the event that the Master Servicer obtains and maintains a blanket
policy insuring against fire and hazards of extended coverage on all of the
Mortgage Loans, then, to the extent such policy names the Trustee as loss payee
and provides coverage in an amount equal to the aggregate unpaid principal
balance on the Mortgage Loans without individual fire and hazard insurance, and
otherwise complies with the requirements of the preceding paragraph, the Master
Servicer will be deemed conclusively to have satisfied its obligations with
respect to fire and hazard insurance coverage.
ENFORCEMENT OF DUE ON SALE CLAUSES
When a Mortgaged Property has been or is about to be conveyed by the
Mortgagor, the Master Servicer, on behalf of the Trustee, will, to the extent it
has knowledge of such conveyance or prospective conveyance, be required to
enforce the rights of the Trustee as the mortgagee of record to accelerate the
maturity of the related Mortgage Loan under any "due-on-sale" clause contained
in the related Mortgage or Mortgage Note; provided, however, that the Master
Servicer will not be required to exercise any such right if the "due-on-sale"
clause, in the reasonable belief of the Master Servicer, is not enforceable
under applicable law or if such enforcement would materially increase the risk
of default or delinquency on, or materially decrease the security for, such
Mortgage Loan. In such event, the Master Servicer will attempt to enter into an
assumption and modification agreement with the person to whom such property has
been or is about to be conveyed, pursuant to which such person becomes liable
under the Mortgage Note and, unless prohibited by applicable law or the mortgage
documents, the Mortgagor remains liable thereon. The Master Servicer also will
be authorized with the prior approval of the Security Guaranty Insurer, if any,
to enter into a substitution of liability agreement with such person, pursuant
to which the original Mortgagor is released from liability and such person is
substituted as Mortgagor and becomes liable under the Mortgage Note.
Notwithstanding the foregoing, with respect to Mortgage Loans with Combined
Loan-to-Value Ratios exceeding 100%, the Master Servicer may, but will be under
no obligation to, permit a borrower selling his principal residence to
substitute the new mortgaged property as collateral for the related Mortgage
Loan. In such event, the Master Servicer may require the borrower to make a
partial prepayment in reduction of the Mortgage Loan.
REALIZATION UPON DEFAULTED MORTGAGE
The Master Servicer generally will foreclose upon or otherwise
comparably convert the ownership in the name of the Trustee of Mortgaged
Properties relating to defaulted Mortgage Loans as to which no satisfactory
arrangements can be made for collection of delinquent payments. However, the
Master Servicer will be required to take into account the existence of any
hazardous substances, hazardous wastes or solid wastes on a Mortgaged Property
in determining whether to foreclose upon or otherwise comparably convert the
ownership of such Mortgaged Property.
WAIVERS AND DEFERMENTS OF CERTAIN PAYMENTS
The Agreement will require the Master Servicer to make reasonable
efforts to collect all payments called for under the terms and provisions of the
Mortgage Loans. Consistent with the foregoing, the Master Servicer may in its
discretion waive any late payment charge, prepayment charge, assumption fee or
any penalty interest in connection with the prepayment of a Mortgage Loan or any
other fee or charge which the Master Servicer would be entitled to retain as
servicing compensation and may waive, vary or modify any term of any Mortgage
Loan or consent to the postponement of strict compliance with any such term or
in any matter grant indulgence to any Mortgagor, subject to the limitations set
forth in the Agreement. In the event the Master Servicer consents to the
deferment of the due dates for payments due on a Mortgage Note, the Master
Servicer will nonetheless make payment of any required Monthly Advance with
respect to the payments so extended to the same extent as if such installment
were due, owing and delinquent and had not been deferred.
SUB-SERVICERS
The Master Servicer will be permitted under the related Agreement to
enter into sub-servicing arrangements with sub-servicers meeting the
requirements of the related Agreement (each, a "Sub-Servicer"). Such
sub-servicing arrangements will not relieve the Master Servicer of any liability
it might otherwise have, had the sub-servicing arrangement not been entered
into.
REMOVAL AND RESIGNATION OF MASTER SERVICER
With respect to each Series of Securities, the Security Guaranty
Insurer, if any, or the Holders of not less than 50 percent of each Class of
Securities of the related Series, other than the holders of residual interests
(the "Majority Securityholders"), by notice in writing to the Master Servicer
and with the prior written consent of the Security Guaranty Insurer, if any,
which consent may not be unreasonably withheld, generally may, pursuant to the
related Agreement, remove the Master Servicer upon the occurrence of any of the
following events:
(i) (A) an Event of Nonpayment (as defined below) if the
Series of Securities has the benefit of a Guaranty Insurance Policy;
(B) the failure by the Master Servicer to make any required Servicing
Advance to the extent such failure materially or adversely affects the
interests of the Security Guaranty Insurer, if any, or the
Securityholders; (C) the failure by the Master Servicer to make any
required Monthly Advance; (D) the failure by the Master Servicer to
remit any Compensating Interest; or (E) any failure by the Master
Servicer to remit to the Trustee any payment required to be made under
the terms of the related Agreement, which in each case continues
unremedied (in the case of the events described in clauses (i)(A),
(i)(B), (i)(D) and (i)(E) for 30 days) after the date upon which
written notice of such failure, requiring the same to be remedied,
shall have been given to the Master Servicer by the Trustee or to the
Master Servicer and the Trustee by any Securityholder or the Security
Guaranty Insurer, if any; or
(ii) failure by the Master Servicer or The Money Store (so
long as The Money Store is the Master Servicer) duly to observe or
perform, in any material respect, any other covenants, obligations or
agreements of the Master Servicer or the Representative, as set forth
in the related Agreement, which failure continues unremedied for a
period of 60 days after the date on which written notice of such
failure, requiring the same to be remedied, shall have been given to
the Master Servicer or The Money Store, as the case may be, by the
Trustee or to the Master Servicer or The Money Store, as the case may
be, and the Trustee by any Securityholder or the Security Guaranty
Insurer, if any; or
(iii) a decree or order of a court or agency or supervisory
authority having jurisdiction for the appointment of a conservator or
receiver or liquidator in any insolvency, readjustment of debt,
marshaling of assets and liabilities or similar proceedings, or for the
winding-up or liquidation of its affairs, shall have been entered
against the Master Servicer and such decree or order shall have
remained in force, undischarged or unstayed for a period of 60 days; or
(iv) the Master Servicer shall consent to the appointment of a
conservator or receiver or liquidator in any insolvency, readjustment
of debt, marshaling of assets and liabilities or similar proceedings of
or relating to the Master Servicer or of or relating to all or
substantially all of the Master Servicer's property; or
(v) the Master Servicer shall admit in writing its inability
to pay its debts as they become due, file a petition to take advantage
of any applicable insolvency or reorganization statute, make an
assignment for the benefit of its creditors, or voluntarily suspend
payment of its obligations.
An "Event of Nonpayment" will generally be defined in the Agreements as
a shortfall on any Remittance Date in moneys (excluding any amounts representing
Insured Payments) available to fund the full amount of the Distribution Amounts
due on such Remittance Date.
The Master Servicer may not assign its obligations under the Agreement
nor resign from the obligations and duties thereby imposed on it except by
mutual consent of the Master Servicer, the Security Guaranty Insurer, if any,
the Trustee and the Majority Securityholders, or upon the determination that the
Master Servicer's duties thereunder are no longer permissible under applicable
law and such incapacity cannot be cured by the Master Servicer. No such
resignation shall become effective until a successor has assumed the Master
Servicer's responsibilities and obligations in accordance with the Agreement.
Upon removal or resignation of the Master Servicer, the Trustee will be
the successor servicer (the "Successor Servicer"), except that the Trustee as
Successor Servicer will not be required to make Monthly Advances and certain
other advances to the extent that the Trustee determines reasonably and in good
faith that such advances would not be recoverable. If, however, the Trustee is
unwilling or unable to act as Successor Servicer, or if the Majority
Securityholders or the Security Guaranty Insurer, if any, so request, the
Trustee may appoint, or petition a court of competent jurisdiction to appoint,
any established mortgage loan servicing institution acceptable to the Security
Guaranty Insurer, if any, having a net worth of not less than $15,000,000 and
which is approved as a servicer by FNMA and FHLMC as the Successor Servicer in
the assumption of all or any part of the responsibilities, duties or liabilities
of the Master Servicer.
The Successor Servicer will be entitled to receive the Servicing Fee,
the Contingency Fee and such other compensation as is described under
"--Servicing and Other Compensation and Payment of Expenses" above.
TERMINATION; PURCHASE OF MORTGAGE LOANS
Pooling and Servicing Agreement; Trust Agreement. The Trust established
under a Pooling and Servicing Agreement or a Trust Agreement will terminate upon
notice to the Trustee following the earlier to occur of (i) the final payment or
other liquidation of such last Mortgage Loan remaining in the related Trust or
the disposition of all REO Property, (ii) the optional purchase of the assets of
the Trust by the Master Servicer or the Security Guaranty Insurer, if any, as
described below, (iii) mutual consent of the Master Servicer, the Security
Guaranty Insurer, if any, and all Securityholders in writing, or (iv) if a REMIC
election has been made for the related Trust, the occurrence of a "qualified
liquidation" of the Trust, as permitted by the REMIC provisions of the Code as
described below; provided, however, that in no event will any Trust terminate
later than twenty-one years after the death of the last survivor of the person
named in the related Agreement.
Subject to provisions in an Agreement concerning adopting a plan of
complete liquidation, on any date on which the aggregate principal balances of
the Mortgage Loans are less than 10% of the Original Pool Principal Balance (or
such other percentage as may be specified in the related Prospectus Supplement),
the Master Servicer may, at its option, and in the absence of the exercise
thereof by the Master Servicer, the Security Guaranty Insurer, if any, may, at
its option, purchase, on the next succeeding Remittance Date, all of the
Mortgage Loans and any related REO Properties at a price equal to the
Termination Price. If so provided in the related Prospectus Supplement, the
Master Services or another entity may repurchase some or all of the Mortgage
Assets under the circumstances described in such Prospectus Supplement.
On any Remittance Date on or after the Cross-Over Date on which
Mortgage Loans with an aggregate principal balance as of the Cut-off Date that
equals or exceeds 25% of the Original Pool Principal Balance (or such other
percentage as may be specified in the related Prospectus Supplement) have become
liquidated Mortgage Loans, the Security Guaranty Insurer, if any, may determine
to purchase and may cause the purchase from the Trust of all Mortgage Loans and
REO Properties in the Pool at a price equal to the sum of the Termination Price
and the outstanding and unpaid fees and expenses of the Trustee and the Master
Servicer.
Indenture. The Indenture will be discharged with respect to a Series of
Notes (except with respect to certain continuing rights specified in the
Indenture) upon the delivery to the Trustee for cancellation of all the Notes of
such Series or, with certain limitations, upon deposit with the Trustee of funds
sufficient for the payment in full of all of the Notes of such Series.
In addition to such discharge with certain limitations, the Indenture
may provide that, if so specified with respect to the Notes of any Series, the
related Trust Fund will be discharged from any and all obligations in respect of
the Notes of such Series (except for certain obligations relating to temporary
Notes and exchange of Notes, to register the transfer of or exchange Notes of
such Series, to replace stolen, lost or mutilated Notes of such Series, to
maintain paying agencies and to hold monies for payment in trust) upon the
deposit with the Trustee, in trust, of money and/or direct obligations of or
obligations guaranteed by the United States of America which, through the
payment of interest and principal in respect thereof in accordance with their
terms, will provide money in an amount sufficient to pay the principal of and
each installment of interest on the Notes of such Series on the final scheduled
Remittance Date for such Notes and any installment of interest on such Notes in
accordance with the terms of the Indenture and the Notes of such Series. In the
event of any such defeasance and discharge of Notes of such Series, holders of
Notes of such Series would be able to look only to such money and/or direct
obligations for payment of principal and interest, if any, on their Notes until
maturity.
REMIC Considerations. If a REMIC election is made for a Series of
Securities, following a final determination by the Internal Revenue Service (the
"IRS") or by a court of competent jurisdiction, in either case from which no
appeal is taken within the permitted time for such appeal, or if any appeal is
taken, following a final determination of such appeal from which no further
appeal can be taken, to the effect that the REMIC does not and will no longer
qualify as a REMIC pursuant to Section 860D of the Code (the "Final
Determination"), at any time on or after the date which is 30 calendar days
following such Final Determination (i) the Majority Securityholders may direct
the Trustee on behalf of such Trust to adopt a "plan of complete liquidation"
(within the meaning of Section 860F(a)(4)(B)(i) of the Code) with respect to
such REMIC and (ii) the Security Guaranty Insurer, if any, may notify the
Trustee of the Security Guaranty Insurer's determination to purchase from the
Trust all Mortgage Loans and all property theretofore acquired by foreclosure,
deed in lieu of foreclosure, or otherwise in respect of any Mortgage Loan, then
remaining in such REMIC at a price (the "Termination Price") equal to the sum of
(x) 100% of the aggregate principal balances of such Mortgage Loans as of the
day of purchase minus amounts remitted from the Principal and Interest Account
to the Distribution Account representing collections of principal on such
Mortgage Loans during the current Due Period, (y) 30 days' interest on such
amount computed at the applicable weighted average of the Adjusted Mortgage Loan
Remittance Rates, and (z) the interest portion of any unreimbursed insured
payment made by the Security Guaranty Insurer, if any. Upon receipt of such
direction by the Majority Securityholders or of such notice from the Security
Guaranty Insurer, the Trustee will notify the holders of the Class R
Certificates of such election to liquidate or such determination to purchase, as
the case may be (the "Termination Notice"). The Holders of a majority of the
percentage interest of the Class R Certificates then outstanding may, within 60
days from the date of receipt of the Termination Notice (the "Purchase Option
Period"), at their option, purchase from the related Trust all Mortgage Loans
and all property theretofore acquired by foreclosure, deed in lieu of
foreclosure, or otherwise in respect of any Mortgage Loan then remaining in the
REMIC at a purchase price equal to the Termination Price.
If, during a Purchase Option Period, the holders of the Class R
Certificates have not exercised the option described in the immediately
preceding paragraph, then upon the expiration of the Purchase Option Period (i)
in the event that the Majority Securityholders have given the Trustee the
direction described in clause (i) above, the Trustee is required to sell the
Mortgage Loans and such other property in the REMIC and distribute the proceeds
of the liquidation of the REMIC, each in accordance with the plan of complete
liquidation, such that, if so directed, the liquidation of the REMIC and the
distribution of the proceeds of the liquidation occur no later than the close of
the 60th day, or such later day as the Majority Securityholders shall permit or
direct in writing, after the expiration of the Purchase Option Period and (ii)
in the event that the Security Guaranty Insurer has given the Trustee notice of
the Security Guaranty Insurer's determination to purchase the assets described
in clause (ii) preceding, the Security Guaranty Insurer shall so purchase such
assets within 60 days after the expiration of the Purchase Option Period.
Following a Final Determination, the holders of a majority of the
percentage interest of the Class R Certificates then outstanding may, at their
option and upon delivery to the Trustee and the Security Guaranty Insurer, if
any, of an opinion of nationally recognized tax counsel selected by the Holders
of such Class R Certificates, which opinion shall be reasonably satisfactory in
form and substance to the Majority Securityholders and the Security Guaranty
Insurer, if any, that the effect of the Final Determination is to increase
substantially the probability that the gross income of the REMIC will be subject
to federal taxation, purchase from the Trust all Mortgage Loans and all property
theretofore acquired by foreclosure, deed in lieu of foreclosure, or otherwise
in respect of any Mortgage Loan then remaining in the applicable REMIC at a
purchase price equal to the Termination Price. The foregoing opinion shall be
deemed satisfactory unless the Majority Securityholders give the holders of a
majority of percentage interests in the Class R Certificates notice that such
opinion is not satisfactory within thirty days after receipt of such opinion.
CONTROL BY HOLDERS
Each Agreement will provide that the Majority Securityholders may
exercise any trust or power conferred on the Trustee with respect to the
Securities or the Trusts, upon satisfaction of certain conditions set forth in
the Agreements; provided, however, that with respect to any action or event
affecting only one or more Classes of Securities, only Holders of such Class or
Classes may exercise such trust or power.
EVENTS OF DEFAULT UNDER THE INDENTURE; RIGHTS OF NOTEHOLDERS
Unless otherwise specified in the related Prospectus Supplement, Events
of Default under the Indenture for each Series of Notes include: (i) a default
for thirty (30) days or more in the payment of any principal of or interest on
any Note of such Series; (ii) failure to perform any other covenant of the
Representative or the Trust Fund in the Indenture which continues for a period
of sixty (60) days after notice thereof is given in accordance with the
procedures described in the related Prospectus Supplement; (iii) any
representation or warranty made by the Representative or the Trust Fund in the
Indenture or in any certificate or other writing delivered pursuant thereto or
in connection therewith with respect to or affecting such Series having been
incorrect in a material respect as of the time made, and such breach is not
cured within sixty (60) days after notice thereof is given in accordance with
the procedures described in the related Prospectus Supplement; (iv) certain
events of bankruptcy, insolvency, receivership or liquidation of the
Representative or the Trust Fund; or (v) any other Event of Default provided
with respect to Notes of that Series.
If an Event of Default with respect to the Notes of any Series at the
time outstanding occurs and is continuing, either the Trustee or the Holders of
a majority of the then aggregate outstanding amount of the Notes of such Series
may declare the principal amount of all the Notes of such Series to be due and
payable immediately. Such declaration may, under certain circumstances, be
rescinded and annulled by the Holders of a majority in aggregate outstanding
amount of the Notes of such Series.
If, following an Event of Default with respect to any Series of Notes,
the Notes of such Series have been declared to be due and payable, the Trustee
may, in its discretion, notwithstanding such acceleration, elect to maintain
possession of the collateral securing the Notes of such Series and to continue
to apply distributions on such collateral as if there had been no declaration of
acceleration if such collateral continues to provide sufficient funds for the
payment of principal of and interest on the Notes of such Series as they would
have become due if there had not been such a declaration. In addition, the
Trustee may not sell or otherwise liquidate the collateral securing the Notes of
a Series following an Event of Default other than a default in the payment of
any principal or interest on any Note of such Series for thirty (30) days or
more, unless (a) the Holders of 100% of the then aggregate outstanding amount of
the Notes of such Series consent to such sale, (b) the proceeds of such sale or
liquidation are sufficient to pay in full the principal of and accrued interest
due and unpaid on the outstanding Notes of such Series at the date of such sale
or (c) the Trustee determines that such collateral would not be sufficient on an
ongoing basis to make all payments on such Notes as such payments would have
become due if such Notes had not been declared due and payable, and the Trustee
obtains the consent of the Holders of 66B% of the then aggregate outstanding
amount of the Notes of such Series.
In the event that the Trustee liquidates the collateral in connection
with an Event of Default involving a default for thirty (30) days or more in the
payment of principal of or interest on the Notes of a Series, the Indenture
provides that the Trustee will have a prior lien on the proceeds of any such
liquidation for unpaid fees and expenses. As a result, upon the occurrence of
such an Event of Default, the amount available for distribution to the
Noteholders may be less than would otherwise be the case. However, the Trustee
may not institute a proceeding for the enforcement of its lien except in
connection with a proceeding for the enforcement of the lien of the Indenture
for the benefit of the Noteholders after the occurrence of such an Event of
Default.
Unless otherwise specified in the related Prospectus Supplement, in the
event the principal of the Note of a Series is declared due and payable, as
described above, the Holders of any such Notes issued at a discount from par may
be entitled to receive no more than an amount equal to the unpaid principal
amount thereof less the amount of such discount which is unamortized.
Subject to the provisions of the Indenture relating to the duties of
the Trustee, in case an Event of Default shall occur and be continuing with
respect to a Series of Notes, the Trustee will be under no obligation to
exercise any of the rights or powers under the Indenture at the request or
direction of any of the Holders of Notes of such Series, unless such Holders
offered to the Trustee security or indemnity satisfactory to it against the
costs, expenses and liabilities which might be incurred by it in complying with
such request or direction. Subject to such provisions for indemnification and
certain limitations contained in the Indenture, the Holders of a majority of the
then aggregate outstanding amount of the Notes of such Series shall have the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee or exercising any trust or power conferred on
the Trustee with respect to the Notes of such Series, and the Holders of a
majority of the then aggregate outstanding amount of the Notes of such Series
may, in certain cases, waive any default with respect thereto, except a default
in the payment of principal or interest or a default in respect of a covenant or
provision of the Indenture that cannot be modified without the waiver or consent
of all the Holders of the outstanding Notes of such Series affected thereby.
AMENDMENT
Each Agreement may be amended from time to time by the Master Servicer
and the Trustee by written agreement, upon the prior written consent of the
Security Guaranty Insurer, if any, without the notice to, or consent of, the
Securityholders, to cure any ambiguity, to correct or supplement any provisions
therein, to comply with any changes in the Code, or to make any other provisions
with respect to matters or questions arising under the Agreement which are not
inconsistent with the provisions of such Agreement, or any agreement for the
retention of each Trustee's Mortgage File; provided, however, that such action
shall not, as evidenced by an Opinion of Counsel delivered to the Trustee,
adversely affect the interest of any Securityholder or any other party and
further provided that no such amendment shall reduce in any manner the amount
of, or delay the timing of, any amounts which are required to be distributed on
any Security without the consent of the Holder of such Security, or change the
rights or obligations of any other party thereto without the consent of such
party.
Each Agreement may be amended from time to time by The Money Store,
the Master Servicer and the Trustee with the consent of the Security Guaranty
Insurer, if any, and the Holders of the majority of the percentage interest in
each Class of Securities affected thereby for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
such Agreement or of modifying in any manner any provisions thereof; provided,
however, that if a REMIC election is made for the applicable Trust, no such
amendment shall be made unless the Trustee receives an Opinion of Counsel, at
the expense of the party requesting the change, that such change will not
adversely affect the status of the Trust as a REMIC or cause a tax to be imposed
on the REMIC, and provided further, that no such amendment shall reduce in any
manner the amount of, or delay the timing of, any amounts which are required to
be distributed on any Securities without the consent of the Holders of 100% of
each Class of Securities affected thereby.
Each Agreement may be amended from time to time by the Master Servicer,
The Money Store and the Trustee by written agreement, upon the prior written
consent of the Security Guaranty Insurer, if any, without the notice to or
consent of the Securityholders, in connection with the substitution of cash, a
letter of credit or any other collateral deposited in a Reserve Account.
It will not be necessary for the consent of holders to approve the
particular form of any proposed amendment, but it will be sufficient if such
consent shall approve the substance thereof.
THE TRUSTEE
Each Prospectus Supplement will name the Trustee under the related
Agreement. The Agreement will provide that the Trustee may resign at any time,
in which event the Representative will be obligated to appoint a successor
Trustee. The Representative may also remove the Trustee if the Trustee ceases to
be eligible to continue as such under the Agreement, if the Trustee becomes
insolvent or if the Trustee enters into certain business combinations. Any
resignation or removal of the Trustee and appointment of a successor Trustee
will not become effective until acceptance of the appointment by the successor
Trustee.
<PAGE>
CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS
GENERAL
The following discussion contains summaries, which are general in
nature, of certain legal matters relating to the Mortgage Loans. Laws and
practices relating to the legal effects and enforcement of mortgages and deeds
of trust vary somewhat from state to state. In general, however, the most
significant applicable legal principles are similar in all states. The following
discussion addresses the more significant legal principles applicable to
mortgages and deeds of trust in all states. It should be noted that some of the
Mortgage Loans may relate to Mortgaged Properties located in California, which
has enacted various laws, not common to most other states, which impose special
limitations on the remedies available to the holders of mortgages and deeds of
trust. These laws, called "anti-deficiency laws," are discussed below.
NATURE OF THE MORTGAGE ASSETS
Single Family Loans, FHA Loans, Secured Conventional Home Improvement
Loans and Multifamily Loans. The Single Family Loans, FHA Loans, Secured
Conventional Home Improvement Loans and Multifamily Loans generally will be
secured by mortgages, deeds of trust, security deeds or deeds to secure debt,
depending upon the prevailing practice in the state in which the property
subject to the loan is located. A mortgage creates a lien upon the real property
encumbered by the mortgage, which lien is generally not prior to the lien for
real estate taxes and assessments. Priority between mortgages depends on their
terms and generally on the order of recording with a state or county office.
There are two parties to a mortgage, the mortgagor, who is the borrower and
owner of the mortgaged property, and the mortgagee, who is the lender. The
mortgagor delivers to the mortgagee a note or bond and the mortgage. Although a
deed of trust is similar to a mortgage, a deed of trust formally has three
parties, the borrower-property owner called the trustor (similar to a
mortgagor), a lender (similar to a mortgagee) called the beneficiary, and a
third-party grantee called the trustee. Under a deed of trust, the borrower
grants the property, irrevocably until the debt is paid, in trust, generally
with a power of sale, to the trustee to secure payment of the obligation. A
security deed and a deed to secure debt are special types of deeds which
indicate on their face that they are granted to secure an underlying debt. By
executing a security deed or deed to secure debt, the grantor conveys title to,
as opposed to merely creating a lien upon, the subject property to the grantee
until such time as the underlying debt is repaid. The mortgagee's authority
under a mortgage, the trustee's authority under a deed of trust and the
grantee's authority under a security deed or deed to secure debt are governed by
law and, with respect to some deeds of trust, the directions of the beneficiary.
Condominiums. Certain of the Mortgage Loans may be loans secured by
condominium units. The condominium building may be a multi-unit building or
buildings, or a group of buildings whether or not attached to each other,
located on property subject to condominium ownership. Condominium ownership is a
form of ownership of real property wherein each owner is entitled to the
exclusive ownership and possession of his or her individual condominium unit and
also owns a proportionate undivided interest in all parts of the condominium
building (other than the individual condominium units) and all areas or
facilities, if any, for the common use of the condominium units. The condominium
unit owners appoint or elect the condominium association to govern the affairs
of the condominium.
Cooperatives. Certain of the Mortgage Loans may be Cooperative Loans.
The Cooperative (i) owns all the real property that comprises the project,
including the land and the apartment building comprised of separate dwelling
units and common areas or (ii) leases the land generally by a long-term ground
lease and owns the apartment building. The Cooperative is directly responsible
for project management and, in most cases, payment of real estate taxes and
hazard and liability insurance. If there is a blanket mortgage on the
Cooperative and/or underlying land, as is generally the case, the Cooperative,
as project mortgagor, is also responsible for meeting these mortgage
obligations. A blanket mortgage is ordinarily incurred by the Cooperative in
connection with the construction or purchase of the Cooperative's apartment
building. The interest of the occupants under proprietary leases or occupancy
agreements to which the Cooperative is a party are generally subordinate to the
interest of the holder of the blanket mortgage in that building. If the
Cooperative is unable to meet the payment obligations arising under its blanket
mortgage, the mortgagee holding the blanket mortgage could foreclose on that
mortgage and terminate all subordinate proprietary leases and occupancy
agreements. In addition, the blanket mortgage on a Cooperative may provide
financing in the form of a mortgage that does not fully amortize with a
significant portion of principal being due in one lump sum at final maturity.
The inability of the Cooperative to refinance this mortgage and its consequent
inability to make such final payment could lead to foreclosure by the mortgagee
providing the financing. A foreclosure in either event by the holder of the
blanket mortgage could eliminate or significantly diminish the value of any
collateral held by the lender who financed the purchase by an individual
tenant-stockholder of Cooperative shares or, in the case of a Trust including
Cooperative Loans, the collateral securing the Cooperative Loans.
The Cooperative is owned by tenant-stockholders who, through ownership
of stock, shares or membership certificates in the corporation, receive
proprietary leases or occupancy agreements which confer exclusive rights to
occupy specific units. Generally, a tenant-stockholder of a Cooperative must
make a monthly payment to the Cooperative representing such tenant-stockholder's
pro rata share of the Cooperative's payments for its blanket mortgage, real
property taxes, maintenance expenses and other capital or ordinary expenses. An
ownership interest in a Cooperative and accompanying rights is financed through
a Cooperative share loan evidenced by a promissory note and secured by a
security interest in the occupancy agreement or proprietary lease and in the
related Cooperative shares. The lender takes possession of the share certificate
and a counterpart of the proprietary lease or occupancy agreement, and a
financing statement covering the proprietary lease or occupancy agreement and
the Cooperative shares is filed in the appropriate state and local offices to
perfect the lender's interest in its collateral. Subject to the limitations
discussed below, upon default of the tenant-stockholder, the lender may sue for
judgment on the promissory note, dispose of the collateral at a public or
private sale or otherwise proceed against the collateral or tenant-stockholder
as an individual as provided in the security agreement covering the assignment
of the proprietary lease or occupancy agreement and the pledge of Cooperative
shares.
Contracts. Each Contract evidences both (a) the obligation of the
obligor to repay the loan evidenced thereby, and (b) the grant of a security
interest in the Manufactured Home to secure repayment of such loan. The
Contracts generally are "chattel paper" as defined in the UCC in effect in the
states in which the Manufactured Homes initially were registered. Pursuant to
the UCC, the rules governing the sale of chattel paper are similar to those
governing the perfection of a security interest in chattel paper. Unless
otherwise specified in the Prospectus Supplement, under the Agreement, the
Representative will transfer or cause the transfer of physical possession of the
Contracts to the Trustee or its custodian. In addition, the Representative will
make or cause to be made an appropriate filing of a UCC-1 financing statement in
the appropriate states to give notice of the Trustee's ownership of the
Contracts.
Under the laws of most states, manufactured housing constitutes
personal property and is subject to the motor vehicle registration laws of the
state or other jurisdiction in which the unit is located. In a few states, where
certificates of title are not required for Manufactured Homes, security
interests are perfected by the filing of a financing statement under Article 9
of the UCC. Such financing statements are effective for five years and must be
renewed at the end of each five years. The certificate of title laws adopted by
the majority of states provide that ownership of motor vehicles and manufactured
housing shall be evidenced by a certificate of title issued by the motor
vehicles department (or a similar entity) of such state. In the states which
have enacted certificate of title laws, a security interest in a unit of
manufactured housing, so long as it is not attached to land in so permanent a
fashion as to become a fixture, is generally perfected by the recording of such
interest on the certificate of title to the unit in the appropriate motor
vehicle registration office or by delivery of the required documents and payment
of a fee to such office, depending on state law. Unless otherwise specified in
the related Prospectus Supplement, the Master Servicer will be required to
effect such notation or delivery of the required documents and fees, and to
obtain possession of the certificate of title, as appropriate under the laws of
the state in which any Manufactured Home is registered. If the Master Servicer
fails, due to clerical errors or otherwise, to effect such notation or delivery,
or files the security interest under the wrong law (for example, under a motor
vehicle title statute rather than under the UCC, in a few states), the Trustee
may not have a first priority security interest in the Manufactured Home
securing a Contract.
As manufactured homes have become larger and often have been attached
to their sites without any apparent intention to move them, courts in many
states have held that manufactured homes may, under certain circumstances,
become subject to real estate title and recording laws. As a result, a security
interest in a manufactured home could be rendered subordinate to the interests
of other parties claiming an interest in the home under applicable state real
estate law. In order to perfect a security interest in a Manufactured Home under
real estate laws, the holder of the security interest must file either a
"fixture filing" under the provisions of the UCC or a real estate mortgage under
the real estate laws of the state where the home is located. These filings must
be made in the real estate records office of the county where the home is
located. Generally, Contracts will contain provisions prohibiting the obligor
from permanently attaching the Manufactured Home to its site. So long as the
obligor does not violate this agreement, a security interest in the Manufactured
Home will be governed by the certificate of title laws or the UCC, and the
notation of the security interest on the certificate of title or the filing of a
UCC financing statement will be effective to maintain the priority of the
security interest in the Manufactured Home. If, however, a Manufactured Home is
permanently attached to its site, other parties could obtain an interest in the
Manufactured Home which is prior to the security interest originally retained by
the Seller and transferred to the Representative.
The Representative will assign or cause to be assigned a security
interest in the Manufactured Homes to the Trustee, on behalf of the
Securityholders. Unless otherwise specified in the related Prospectus
Supplement, neither the Representative, the Master Servicer nor the Trustee will
amend the certificates of title to identify the Trustee, on behalf of the
Securityholders, as the new secured party and, accordingly, the Representative
or the Seller will continue to be named as the secured party on the certificates
of title relating to the Manufactured Homes. In most states, such assignment is
an effective conveyance of such security interest without amendment of any lien
noted on the related Certificate of title and the new secured party succeeds to
the Representative's rights as the secured party. However, in some states there
exists a risk that, in the absence of an amendment to the certificate of title,
such assignment of the security interest might not be held effective against
creditors of the Representative or Seller.
In the absence of fraud, forgery or permanent affixation of the
Manufactured Home to its site by the Manufactured Home owner, or administrative
error by state recording officials, the notation of the lien of the Trustee on
the certificate of title or delivery of the required documents and fees should
be sufficient to protect the Trustee against the rights of subsequent purchasers
of a Manufactured Home or subsequent lenders who take a security interest in the
Manufactured Home. If there are any Manufactured Homes as to which the security
interest assigned to the Representative and the Trustee is not perfected, such
security interest would be subordinate to, among others, subsequent purchasers
for value of Manufactured Homes and holders of perfected security interests.
There also exists a risk in not identifying the Trustee, on behalf of the
Securityholders as the new secured party on the certificate of title that,
through fraud or negligence, the security interest of the Trustee could be
released.
If the owner of a Manufactured Home moves it to a state other than the
state in which such Manufactured Home initially is registered, under the laws of
most states the perfected security interest in the Manufactured Home would
continue for four months after such relocation and thereafter until the owner
re-registers the Manufactured Home in such state. If the owner were to relocate
a Manufactured Home to another state and re-register the Manufactured Home in
such state, and if steps are not taken to re-perfect the Trustee's security
interest in such state, the security interest in the Manufactured Home would
cease to be perfected. A majority of states generally require surrender of a
certificate of title to re-register a Manufactured Home; accordingly, the
Trustee must surrender possession if it holds the certificate of title to such
Manufactured Home or, in the case of Manufactured Homes registered in states
which provide for notation of lien, the Master Servicer would receive notice of
surrender if the security interest in the Manufactured Home is noted on the
certificate of title. Accordingly, the Trustee would have the opportunity to
re-perfect its security interest in the Manufactured Home in the state of
relocation. In states which do not require a certificate of title for
registration of a Manufactured Home, re-registration could defeat perfection.
Similarly, when an obligor under a manufactured housing conditional sales
contract sells a Manufactured Home, the obligee must surrender possession of the
certificate of title or it will receive notice as a result of its lien noted
thereon and accordingly will have an opportunity to require satisfaction of the
related manufactured housing conditional sales contract before release of the
lien. The Master Servicer will be obligated to take such steps, at the Master
Servicer's expense, as are necessary to maintain perfection of security
interests in the Manufactured Homes.
Under the laws of most states, liens for repairs performed on a
Manufactured Home take priority even over a perfected security interest. The
Representative will represent that it has no knowledge of any such liens with
respect to any Manufactured Home securing a Contract. However, such liens could
arise at any time during the term of a Contract. No notice will be given to the
Trustee or Securityholders in the event such a lien arises.
FORECLOSURE/REPOSSESSION
Single Family Loans, FHA Loans, Secured Conventional Home Improvement
Loans and Multifamily Loans. Foreclosure of a deed of trust is generally
accomplished by a non-judicial sale under a specific provision in the deed of
trust which authorizes the trustee to sell the property at public auction upon
any default by the borrower under the terms of the note or deed of trust. In
some states, the trustee must record a notice of default and send a copy to the
borrower-trustor, to any person who has recorded a request for a copy of any
notice of default and notice of sale, to any successor in interest to the
borrower-trustor, to the beneficiary of any junior deed of trust and to certain
other persons. Before such non-judicial sales take place, typically a notice of
sale must be posted in a public place and published during a specific period of
time in one or more newspapers, posted on the property, and sent to parties
having an interest of record in the property.
Foreclosure of a mortgage is generally accomplished by judicial
action. The action is initiated by the service of legal pleadings upon all
parties having an interest in the real property. Delays in completion of the
foreclosure may occasionally result from difficulties in locating necessary
parties. When the mortgagee's right to foreclosure is contested, the legal
proceedings necessary to resolve the issue can be time-consuming. After the
completion of a judicial foreclosure proceeding, the court generally issues a
judgment of foreclosure and appoints a referee or other court officer to conduct
the sale of the property. In general, the borrower, or any other person having a
junior encumbrance on the real estate, may, during a statutorily prescribed
reinstatement period, cure a monetary default by paying the entire amount in
arrears plus other designated costs and expenses incurred in enforcing the
obligation. Generally, state law controls the amount of foreclosure expenses and
costs, including attorney's fees, which may be recovered by a lender. After the
reinstatement period has expired without the default having been cured, the
borrower or junior lienholder no longer has the right to reinstate the loan and
must pay the loan in full to prevent the scheduled foreclosure sale. If the
mortgage is not reinstated, a notice of sale must be posted in a public place
and, in most states, published for a specific period of time in one or more
newspapers. In addition, some state laws require that a copy of the notice of
sale be posted on the property and sent to all parties having an interest in the
real property.
Although foreclosure sales are typically public sales, frequently no
third party purchaser bids in excess of the lender's lien because of the
difficulty of determining the exact status of title to the property, the
possible deterioration of the property during the foreclosure proceedings and a
requirement that the purchaser pay for the property in cash or by cashier's
check. Thus the foreclosing lender often purchases the property from the trustee
or referee for an amount equal to the principal amount outstanding under the
loan, accrued and unpaid interest and the expenses of foreclosure. Thereafter,
the lender will assume the burden of ownership, including obtaining hazard
insurance and making such repairs at its own expense as are necessary to render
the property suitable for sale. The lender will commonly obtain the services of
a real estate broker and pay the broker's commission in connection with the sale
of the property. Depending upon market conditions, the ultimate proceeds of the
sale of the property may not equal the lender's investment in the property.
Courts have imposed general equitable principles upon foreclosure,
which are generally designed to mitigate the legal consequences to the borrower
of the borrower's defaults under the loan documents. Some courts have been faced
with the issue of whether federal or state constitutional provisions reflecting
due process concerns for fair notice require that borrowers under deeds of trust
receive notice longer than that prescribed by statute. For the most part, these
cases have upheld the notice provisions as being reasonable or have found that
the sale by a trustee under a deed of trust does not involve sufficient state
action to afford constitutional protection to the borrower.
In the case of foreclosure on a building which was converted from a
rental building to a building owned by a Cooperative under a non-eviction plan,
some states require that a purchaser at a foreclosure sale take the property
subject to rent control and rent stabilization laws which apply to certain
tenants who elected to remain in the building but who did not purchase shares in
the Cooperative when the building was so converted.
Cooperative Loans. The Cooperative shares owned by the
tenant-stockholder and pledged to the lender are, in almost all cases, subject
to restrictions on transfer as set forth in the Cooperative's Certificate of
Incorporation and Bylaws, as well as the proprietary lease or occupancy
agreement, and may be canceled by the Cooperative for failure by the
tenant-stockholder to pay rent or other obligations or charges owed by such
tenant-stockholder, including mechanics' liens against the cooperative apartment
building incurred by such tenant-stockholder. The proprietary lease or occupancy
agreement generally permits the Cooperative to terminate such lease or agreement
in the event an obligor fails to make payments or defaults in the performance of
covenants required thereunder. Typically, the lender and the Cooperative enter
into a recognition agreement which establishes the rights and obligations of
both parties in the event of a default by the tenant-stockholder on its
obligations under the proprietary lease or occupancy agreement. A default by the
tenant-stockholder under the proprietary lease or occupancy agreement will
usually constitute a default under the security agreement between the lender and
the tenant-stockholder.
The recognition agreement generally provides that, in the event that
the tenant-stockholder has defaulted under the proprietary lease or occupancy
agreement, the Cooperative will take no action to terminate such lease or
agreement until the lender has been provided with an opportunity to cure the
default. The recognition agreement typically provides that if the proprietary
lease or occupancy agreement is terminated, the Cooperative will recognize the
lender's lien against proceeds from the sale of the Cooperative apartment,
subject, however, to the Cooperative's right to sums due under such proprietary
lease or occupancy agreement. The total amount owed to the Cooperative by the
tenant-stockholder, which the lender generally cannot restrict and does not
monitor, could reduce the value of the collateral below the outstanding
principal balance of the Cooperative Loan and accrued and unpaid interest
thereon.
Recognition agreements also provide that in the event of a foreclosure
on a Cooperative Loan, the lender must obtain the approval or consent of the
Cooperative as required by the proprietary lease before transferring the
Cooperative shares or assigning the proprietary lease.
In some states, foreclosure on the Cooperative shares is accomplished
by a sale in accordance with the provisions of Article 9 of the UCC and the
security agreement relating to those shares. Article 9 of the UCC requires that
a sale be conducted in a "commercially reasonable" manner. Whether a foreclosure
sale has been conducted in a "commercially reasonable" manner will depend on the
facts in each case. In determining commercial reasonableness, a court will look
to the notice given the debtor and the method, manner, time, place and terms of
the foreclosure. Generally, a sale conducted according to the usual practice of
banks selling similar collateral will be considered reasonably conducted.
Article 9 of the UCC provides that the proceeds of the sale will be
applied first to pay the costs and expenses of the sale and then to satisfy the
indebtedness secured by the lender's security interest. The recognition
agreement, however, generally provides that the lender's right to reimbursement
is subject to the right of the Cooperative to receive sums due under the
proprietary lease or occupancy agreement. If there are proceeds remaining, the
lender must account to the tenant-stockholder for the surplus. Conversely, if a
portion of the indebtedness remains unpaid, the tenant-stockholder is generally
responsible for the deficiency. See "Anti-Deficiency Legislation and Other
Limitations on Lenders" below.
Contracts. The Master Servicer on behalf of the Trustee, to the extent
required by the related Agreement, may take action to enforce the Trustee's
security interest with respect to Contracts in default by repossession and
resale of the Manufactured Homes securing such Contracts in default. So long as
the Manufactured Home has not become subject to the real estate law, a creditor
can repossess a Manufactured Home securing a Contract by voluntary surrender, by
"self-help" repossession that is "peaceful" (i.e., without breach of the peace)
or, in the absence of voluntary surrender and the ability to repossess without
breach of the peace, by judicial process. The holder of a Contract must give the
debtor a number of days' notice, generally varying from 10 to 30 days depending
on the state, prior to commencement of any repossession. The UCC and consumer
protection laws in most states place restrictions on repossession sales,
including requiring prior notice to the debtor and commercial reasonableness in
effecting such a sale. The law in most states also requires that the debtor be
given notice of any sale prior to resale of the unit so that the debtor may
redeem at or before such resale. In the event of such repossession and resale of
a Manufactured Home, the Trustee would be entitled to be paid out of the sale
proceeds before such proceeds could be applied to the payment of the claims of
unsecured creditors or the holders of subsequently perfected security interests
or, thereafter, to the debtor.
Under the laws applicable in most states, a creditor is entitled to
obtain a deficiency judgment from a debtor for any deficiency on repossession
and resale of the Manufactured Home securing such a debtor's loan. However, some
states impose prohibitions or limitations on deficiency judgments.
Certain other statutory provisions, including federal and state
bankruptcy and insolvency laws and general equitable principles, may limit or
delay the ability of a lender to repossess and resell collateral.
RIGHTS OF REDEMPTION
Single Family Loans, FHA Loans, Secured Conventional Home Improvement
Loans and Multifamily Loans. In some states, after sale pursuant to a deed of
trust or foreclosure of a mortgage, the borrower and foreclosed junior lienors
are given a statutory period in which to redeem the property from the
foreclosure sale. In some states, redemption may occur only upon payment of the
entire principal balance of the loan, accrued interest and expenses of
foreclosure. In other states, redemption may be authorized if the former
borrower pays only a portion of the sums due. The effect of a statutory right of
redemption is to diminish the ability of the lender to sell the foreclosed
property. The rights of redemption would defeat the title of any purchaser from
the lender subsequent to foreclosure or sale under a deed of trust.
Consequently, the practical effect of the redemption right is to force the
lender to retain the property and pay the expenses of ownership until the
redemption period has run.
Contracts. While state laws do not usually require notice to be given
debtors prior to repossession, many states do require delivery of a notice of
default and of the debtor's right to cure defaults before repossession. The law
in most states also requires that the debtor be given notice of sale prior to
the resale of the home so that the owner may redeem at or before resale. In
addition, the sale must comply with the requirements of the UCC. Manufactured
Homes are most often resold through private sale.
FORECLOSURE IN CALIFORNIA
It is expected that a significant portion of the Mortgage Assets (by
principal balance) will be secured by properties located in California.
Foreclosure of a deed of trust in California may be effected by a judicial or
nonjudicial foreclosure proceeding, with the choice of remedy depending on the
circumstances. Where the likelihood of a large recoverable deficiency is
present, a judicial foreclosure action may be preferred. The discussion above
under the heading "Foreclosure/Repossession" and "Rights of Redemption" are
generally accurate with respect to foreclosure of a deed of trust in California.
Generally, upon the completion of a non-judicial foreclosure sale in
California, the foreclosing lender is prohibited from obtaining a deficiency
judgment against the borrower. A deficiency judgment is available following a
judicial foreclosure, subject to the limitation of the excess of the outstanding
debt over the fair market value of the property at the time of sale, and in no
event may the deficiency exceed the difference between the outstanding debt and
the purchase price at the foreclosure sale. However, in the case of certain
purchase money mortgage loans, a lender may be prohibited by statute from
obtaining a deficiency judgment. California law also requires the deed of trust
beneficiary to exhaust all real property security in a single action (i.e. in a
judicial foreclosure) before a deficiency judgment may be sought against the
borrower.
ANTI-DEFICIENCY LEGISLATION AND OTHER LIMITATIONS ON LENDERS
Certain states (including California) have imposed statutory
prohibitions which limit the remedies of a beneficiary under a deed of trust or
a mortgagee under a mortgage. In some states, statutes limit the right of the
beneficiary or mortgagee to obtain a deficiency judgment against the borrower
following foreclosure or sale under a deed of trust. A deficiency judgment would
be a personal judgment against the former borrower equal in most cases to the
difference between the amount due to the lender and the fair market value of the
real property sold at the foreclosure sale. As a result of these prohibitions,
it is anticipated that in many instances the Master Servicer will not seek
deficiency judgments against defaulting mortgagors. Under the laws applicable in
most states, a creditor is entitled to obtain a deficiency judgment for any
deficiency following possession and resale of a Manufactured Home. However, some
states impose prohibitions or limitations on deficiency judgments in such cases.
In addition to anti-deficiency and related legislation, numerous other
federal and state statutory provisions, including the federal bankruptcy laws
and state laws (including California law) affording relief to debtors, may
interfere with or affect the ability of the secured mortgage lender to realize
upon collateral and/or enforce a deficiency judgment. For example, in a
proceeding under the federal Bankruptcy Code, a lender may not foreclose on the
Mortgaged Property without the permission of the bankruptcy court. The
rehabilitation plan proposed by the debtor may provide, if the court determines
that the value of the Mortgaged Property is less than the principal balance of
the mortgage loan, for the reduction of the secured indebtedness to the value of
the Mortgaged Property as of the date of the commencement of the bankruptcy,
rendering the lender a general unsecured creditor for the difference, and also
may reduce the monthly payments due under such mortgage loan, change the rate of
interest and alter the mortgage loan repayment schedule. The effect of any such
proceedings under the federal Bankruptcy Code, including but not limited to any
automatic stay, could result in delays in receiving payments on the Mortgage
Loans underlying a Series of Securities and possible reductions in the aggregate
amount of such payments. Some states also have homestead exemption laws which
would protect a principal residence from a liquidation in bankruptcy.
Federal and local real estate tax laws provide priority to certain tax
liens over the lien of a mortgage or secured party. Numerous federal and state
consumer protection laws impose substantive requirements upon mortgage lenders
and manufactured housing lenders in connection with the origination, servicing
and enforcement of Single Family Loans, Cooperative Loans and Contracts. These
laws include the federal Truth-in-Lending Act, Real Estate Settlement Procedures
Act, Equal Credit Opportunity Act, Fair Credit Billing Act, Fair Credit
Reporting Act and related statutes and regulations. These federal and state laws
impose specific statutory liabilities upon lenders who fail to comply with the
provisions of the law. In some cases, this liability may affect assignees of the
loans or contracts.
The so-called "Holder-in-Due-Course" Rule of the Federal Trade
Commission (the "FTC Rule") has the effect of subjecting a seller (and certain
related creditors and their assignees) in a consumer credit transaction and any
assignee of the creditor to all claims and defenses which the debtor in the
transaction could assert against the seller of the goods. Liability under the
FTC Rule is limited to the amounts paid by a debtor on the contract, and the
holder of the contract may also be unable to collect amounts still due
thereunder.
Most of the Contracts in a Mortgage Pool will be subject to the
requirements of the FTC Rule. Accordingly, the Trustee, as holder of the
Contracts, will be subject to any claims or defenses that the purchaser of the
related Manufactured Home may assert against the seller of the Manufactured
Home, subject to a maximum liability equal to the amounts paid by the obligor on
the Contract. If an obligor is successful in asserting any such claim or
defense, and if the seller of such Contract had or should have had knowledge of
such claim or defense, the Master Servicer will have the right to require the
seller to repurchase the Contract because of a breach of such seller's
representation and warranty that no claims or defenses exist which would affect
the obligor's obligation to make the required payments under the Contract.
Generally, Article 9 of the UCC governs foreclosure on Cooperative
shares and the related proprietary lease or occupancy agreement. Some courts
have interpreted section 9-504 of the UCC to prohibit a deficiency award unless
the creditor establishes that the sale of the collateral (which, in the case of
a Cooperative Loan, would be the shares of the Cooperative and the related
proprietary lease or occupancy agreement) was conducted in a commercially
reasonable manner
DUE-ON-SALE CLAUSES
Unless otherwise provided in the related Prospectus Supplement, each
Mortgage Loan may contain a due-on-sale clause which will generally provide that
if the mortgagor or obligor sells, transfers or conveys the Mortgaged Property,
the loan or contract may be accelerated by the mortgagor or secured party. The
Garn-St. Germain Depository Institutions Act of 1982 (the "Garn-St. Germain
Act"), subject to certain exceptions, preempts state constitutional, statutory
and case law prohibiting the enforcement of due-on-sale clauses. As to loans
secured by an owner-occupied residence (which would include a Manufactured
Home), the Garn-St. Germain Act sets forth nine specific instances in which a
mortgagee covered by the Act may not exercise its rights under a due-on-sale
clause, notwithstanding the fact that a transfer of the property may have
occurred. The inability to enforce a due-on-sale clause may result in transfer
of the related Mortgaged Property to an uncreditworthy person, which could
increase the likelihood of default.
PREPAYMENT CHARGES
Under certain state laws, prepayment charges may not be imposed after
a certain period of time following origination of mortgage loans with respect to
prepayments on loans secured by liens encumbering owner-occupied residential
properties. Since many of the Mortgaged Properties will be owner-occupied, it is
anticipated that prepayment charges may not be imposed with respect to many of
the Mortgage Loans. The absence of such a restraint on prepayment, particularly
with respect to fixed rate Mortgage Loans having higher Mortgage Rates or APR's,
may increase the likelihood of refinancing or other early retirement of such
loans or contracts. Legal restrictions, if any, on prepayment of Multifamily
Loans will be described in the related Prospectus Supplement.
APPLICABILITY OF USURY LAWS
Title V of the Depository Institutions Deregulation and Monetary
Control Act of 1980, enacted in March 1980 ("Title V"), provides that state
usury limitations shall not apply to certain types of residential first mortgage
loans originated by certain lenders after March 31, 1980. The Office of Thrift
Supervision, as successor to the Federal Home Loan Bank Board, is authorized to
issue rules and regulations and to publish interpretations governing
implementation of Title V. The statute authorized the states to reimpose
interest rate limits by adopting, before April 1, 1983, a law or constitutional
provision which expressly rejects an application of the federal law. In
addition, even where Title V is not so rejected, any state is authorized by the
law to adopt a provision limiting discount points or other charges on mortgage
loans covered by Title V. Certain states have taken action to reimpose interest
rate limits and/or to limit discount points or other charges.
Title V also provides that, subject to the following conditions, state
usury limitations will not apply to any loan which is secured by a first lien on
certain kinds of manufactured housing. The Contracts would be covered if they
satisfy certain conditions, among other things, governing the terms of any
prepayment, late charges and deferral fees and requiring a 30-day notice period
prior to instituting any action leading to repossession of or foreclosure with
respect to the related unit. Title V authorized any state to reimpose
limitations on interest rates and finance charges by adopting before April 1,
1983 a law or constitutional provision which expressly rejects application of
the federal law. Fifteen states adopted such a law prior to the April 1, 1983
deadline. In addition, even where Title V was not so rejected, any state is
authorized by the law to adopt a provision limiting discount points or other
charges on loans covered by Title V. In any state in which application of Title
V was expressly rejected or a provision limiting discount points or other
charges has been adopted, no Contract which imposes finance charges or provides
for discount points or charges in excess of permitted levels will be included in
any Trust Fund.
SOLDIERS' AND SAILORS' CIVIL RELIEF ACT
Generally, under the terms of the Soldiers' and Sailors' Civil Relief
Act of 1940, as amended (the "Relief Act"), a borrower who enters military
service after the origination of such borrower's Mortgage Loan (including a
borrower who is a member of the National Guard or is in reserve status at the
time of the origination of the Mortgage Loan and is later called to active duty)
may not be charged interest above an annual rate of 6% during the period of such
borrower's active duty status, unless a court orders otherwise upon application
of the lender. It is possible that such interest rate limitation could have an
effect, for an indeterminate period of time, on the ability of the Master
Servicer to collect full amounts of interest on certain of the Mortgage Loans.
Unless otherwise provided in the applicable Prospectus Supplement, any shortfall
in interest collections resulting from the application of the Relief Act could
result in losses to the holders of the Securities. In addition, the Relief Act
imposes limitations which would impair the ability of the Master Servicer to
foreclose on an affected Mortgage Loan during the borrower's period of active
duty status. Thus, in the event that such a Mortgage Loan goes into default,
there may be delays and losses occasioned by the inability to realize upon the
Mortgaged Property in a timely fashion.
PRODUCT LIABILITY AND RELATED LITIGATION
Certain environmental and product liability claims may be asserted
alleging personal injury or property damage from the existence of certain
chemical substances which may be present in building materials. For example,
formaldehyde and asbestos have been and in some cases are incorporated into many
building materials utilized in manufactured and other housing. As a consequence,
lawsuits may arise from time to time asserting claims against manufacturers or
builders of the housing, suppliers of component parts, and related persons in
the distribution process. Plaintiffs have won such judgments in certain such
lawsuits.
Under the FTC Rule described above, the holder of any Contract secured
by a Manufactured Home with respect to which a product liability claim has been
successfully asserted may be liable to the obligor for the amount paid by the
obligor on the related Contract and may be unable to collect amounts still due
under the Contract. Unless otherwise described in the related Prospectus
Supplement, the successful assertion of such claim constitutes a breach of a
representation or warranty of the Seller, and the Securityholders would suffer a
loss only to the extent that (i) the Seller breached its obligation to
repurchase the Contract in the event an obligor is successful in asserting such
a claim, and (ii) the Seller, the Representative or the Trustee were
unsuccessful in asserting any claim of contribution or subrogation on behalf of
the Securityholders against the manufacturer or other persons who were directly
liable to the plaintiff for the damages. Typical products liability insurance
policies held by manufacturers and component suppliers of manufactured homes may
not cover liabilities arising from formaldehyde and certain other chemicals in
manufactured housing, with the result that recoveries from such manufacturers,
suppliers or other persons may be limited to their corporate assets without the
benefit of insurance.
To the extent described in the Prospectus Supplement, the Mortgage
Loans may include installment sales contracts entered into with the builders of
the homes located on the Mortgaged Properties. The Mortgagors in some instances
may have claims and defenses against the builders which could be asserted
against a Trust.
ENVIRONMENTAL CONSIDERATIONS
Environmental conditions may diminish the value of the Mortgage Assets
and give rise to liability of various parties. There are many federal and state
environmental laws concerning hazardous waste, hazardous substances, gasoline,
radon and other materials which may affect the property securing the Mortgage
Assets. For example, under the federal Comprehensive Environmental Response
Compensation and Liability Act, as amended, and possibly under state law in
certain states, a secured party which takes a deed in lieu of foreclosure or
purchases a mortgaged property at a foreclosure sale may become liable in
certain circumstances for the costs of a remedial action ("Cleanup Costs") if
hazardous wastes or hazardous substances have been released or disposed of on
the property. Such Cleanup Costs may be substantial. It is possible that such
costs could become a liability of a Trust and reduce the amounts otherwise
distributable to the Securityholders if a Mortgaged Property securing a Mortgage
Loan became the property of such Trust in certain circumstances and if such
Cleanup Costs were incurred. Moreover, certain states by statute impose a lien
for any Cleanup Costs incurred by such state on the property that is the subject
of such Cleanup Costs (a "Superlien"). All subsequent liens on such property are
subordinated to such Superlien and, in some states, even prior recorded liens
are subordinated to such Superliens. In the latter states, the security interest
of the Trustee in a property that is subject to such a Superlien could be
adversely affected.
FEDERAL INCOME TAX CONSEQUENCES
In the opinion of Stroock & Stroock & Lavan LLP, special Federal tax
counsel, ("Federal Tax Counsel"), the following are the material federal income
tax consequences of the purchase, ownership and disposition of the Certificates
or Notes offered hereby. The discussion, and the opinions referred to below, are
based on laws, regulations, rulings and decisions now in effect (or, in the case
of certain regulations, proposed), all of which are subject to change or
possibly differing interpretations. Because tax consequences may vary based on
the status or tax attributes of the owner of a Certificate, prospective
investors should consult their own tax advisors in determining the federal,
state, local and other tax consequences to them of the purchase, ownership and
disposition of Certificates or Notes. For purposes of this tax discussion
(except with respect to information reporting, or where the context indicates
otherwise), the terms "Certificateholder" and "holder" mean the beneficial owner
of a Certificate.
REMIC ELECTIONS
Under the Internal Revenue Code of 1986, as amended (the "Code"), an
election may be made with respect to each Trust related to a series of
Certificates to treat such Trust or certain assets of such Trust as a "real
estate mortgage investment conduit" ("REMIC"). The Prospectus Supplement for
each series of Certificates will indicate whether a REMIC election will be made
with respect to the related Trust. In addition, if the related Prospectus
Supplement so provides, the transaction documents for a Trust may provide that
an election will be made on or after September 1, 1997 to qualify such trust as
a Financial Asset Securitization Investment Trust ("FASIT") pursuant to new
provisions of the Code which will be effective as of such date. To the extent
provided in the Prospectus Supplement for a series, Certificateholders may also
have the benefit of a Reserve Account and of certain agreements (each, a "Yield
Supplement Agreement") under which payment will be made from the Reserve Account
in the event that interest accrued on the Mortgage Loans at their Mortgage
Interest Rates is insufficient to pay interest on the Certificates of such
Series (a "Basis Risk Shortfall"). If a REMIC election is to be made, the
Prospectus Supplement will designate the Certificates of such series as "regular
interests" ("REMIC Regular Certificates") in the REMIC (within the meaning of
Section 860G(a)(1) of the Code) or as the "residual interest" ("REMIC Residual
Certificates") in the REMIC (within the meaning of Section 860G(a)(2) of the
Code). The terms "REMIC Certificates" and "Non-REMIC Certificates" denote,
respectively, Certificates of a series with respect to which a REMIC election
will, or will not, be made.
REMIC CERTIFICATES
With respect to each series of REMIC Certificates, the Trustee will
agree in the Agreement to elect to treat the related Trust or certain assets of
such Trust as a REMIC. Qualification as a REMIC requires ongoing compliance with
certain conditions. Upon the issuance of each series of REMIC Certificates,
Federal Tax Counsel will deliver its opinion generally to the effect that, with
respect to each series of REMIC Certificates for which a REMIC election is to be
made, under then existing law and assuming a proper and timely REMIC election
and ongoing compliance with the provisions of the Agreement and applicable
provisions of the Code and applicable Treasury regulations, the related Trust or
certain assets of such Trust will be a REMIC and the REMIC Certificates will be
considered to evidence ownership of "regular interests" or "residual interests"
within the meaning of the REMIC provisions of the Code.
To the extent provided in the Prospectus Supplement for a series, REMIC
Regular Certificateholders who are entitled to payments from the Reserve Account
in the event of a Basis Risk Shortfall will be required to allocate their
purchase price between their beneficial ownership interests in the related REMIC
regular interests and Yield Supplement Agreements, and will be required to
report their income realized with respect to each, calculated taking into
account such allocation. In general, such allocation would be based on the
respective fair market values of the REMIC regular interests and the related
Yield Supplement Agreements on the date of purchase of the related REMIC Regular
Certificate. However, a portion of the purchase price of a REMIC Regular
Certificate should be allocated to accrued but unpaid interest. No
representation is or will be made as to the fair market value of the Yield
Supplement Agreements or the relative values of the REMIC regular interests and
the Yield Supplement Agreements, upon initial issuance of the related REMIC
Regular Certificates or at any time thereafter. REMIC Regular Certificateholders
are advised to consult their own tax advisors concerning the determination of
such fair market values. Under the Agreement, holders of applicable classes of
REMIC Regular Certificates will agree that, for federal income tax purposes,
they will be treated as owners of the respective class of regular interests and
of the corresponding Yield Supplement Agreement.
Status of REMIC Certificates. The REMIC Certificates will be "real
estate assets" for purposes of Section 856(c)(5)(A) of the Code and assets
described in Section 7701(a)(19)(C) of the Code (assets qualifying under one or
both of those sections, applying each section separately, "qualifying assets")
to the extent that the REMIC's assets are qualifying assets, but not to the
extent that the REMIC's assets consist of Yield Supplement Agreements. However,
if at least 95 percent of the REMIC's assets are qualifying assets, then 100
percent of the REMIC Certificates will be qualifying assets. Similarly, income
on the REMIC Certificates will be treated as "interest on obligations secured by
mortgages on real property" within the meaning of Section 856(c)(3)(B) of the
Code, subject to the limitations of the preceding two sentences. In addition to
Mortgage Assets, the REMIC's assets will include payments on Mortgage Assets
held pending distribution to holders of REMIC Certificates, amounts in reserve
accounts (if any), other credit enhancements (if any) and possibly buydown funds
("Buydown Funds"). The Mortgage Assets generally will be qualifying assets under
the foregoing sections of the Code except to the extent provided in the
Prospectus Supplement. However, Mortgage Assets that are not secured by
residential real property or real property used primarily for church purposes
may not constitute qualifying assets under Section 7701(a)(19)(C)(v) of the
Code. In addition, to the extent that the principal amount of a Mortgage Asset
exceeds the value of the property securing the Mortgage Asset, it is unclear and
Federal Tax Counsel is unable to opine whether the loans will be qualifying
assets. The regulations under Sections 860A through 860G of the Code (the "REMIC
Regulations") treat credit enhancements as part of the mortgage or pool of
mortgages to which they relate, and therefore credit enhancements generally
should be qualifying assets. Regulations issued in conjunction with the REMIC
Regulations provide that amounts paid on Mortgage Assets and held pending
distribution to holders of Certificates ("cash flow investments") will be
treated as qualifying assets. It is unclear whether amounts in a Reserve Account
or Buydown Funds would also constitute qualifying assets under any of those
provisions. The Prospectus Supplement for each series will indicate (if
applicable) that it has Buydown Funds. The REMIC Certificates will not be
"residential loans" for the purposes of the residential loan requirement of
Section 593(g)(4)(B) of the Code.
TIERED REMIC STRUCTURES
For certain series of Certificates, two or more separate elections may
be made to treat designated portions of the related Trust as REMICs ("Tiered
REMICs") for federal income tax purposes. Upon the issuance of any such series
of Certificates, Federal Tax Counsel will deliver its opinion generally to the
effect that, assuming compliance with all provisions of the related Pooling and
Servicing Agreement and applicable provisions of the Code and applicable
Treasury regulations and rulings, the Tiered REMICs will each qualify under then
existing law as a REMIC and the REMIC Certificates issued by the Tiered REMICs,
respectively, will be considered to evidence ownership of "regular interests" or
"residual interests" in the related REMIC within the meaning of the REMIC
provisions of the Code.
Solely for purposes of determining whether the REMIC Certificates will
be "real estate assets" within the meaning of Section 856(c)(5)(A) of the Code
and assets described in Section 7701(a)(19)(C) of the Code, and whether the
income on such Certificates is interest described in Section 856(c)(3)(B) of the
Code, the Tiered REMICs will be treated as one REMIC.
REMIC REGULAR CERTIFICATES
Current Income on REMIC Regular Certificates--General. Except as
otherwise indicated herein, the REMIC Regular Certificates will be treated for
federal income tax purposes (but not necessarily for accounting or other
purposes) as debt instruments that are issued by the REMIC on the date of
issuance of the REMIC Regular Certificates and not as ownership interests in the
REMIC or the REMIC's assets. Holders of REMIC Regular Certificates who would
otherwise report income under a cash method of accounting will be required to
report income with respect to REMIC Regular Certificates under an accrual
method.
Payments of interest on REMIC Regular Certificates may be based on a
fixed rate, a variable rate as permitted by the REMIC Regulations, or may
consist of a specified portion of the interest payments on qualified mortgages
where such portion does not vary during the period the REMIC Regular Certificate
is outstanding. The definition of a variable rate for purposes of the REMIC
Regulations is based on the definition of a qualified floating rate for purposes
of the rules governing original issue discount set forth in Sections 1271
through 1275 of the Code and the regulations thereunder (the "OID Regulations")
with certain modifications and permissible variations. See "REMIC Regular
Certificates-Current Income on REMIC Regular Certificates--Original Issue
Discount---Variable Rate REMIC Regular Certificates," below, for a discussion of
the definition of a qualified floating rate for purposes of the OID Regulations.
In contrast to the OID Regulations, for purposes of the REMIC Regulations, a
qualified floating rate does not include any multiple of a qualified floating
rate (also excluding multiples of qualified floating rates that themselves would
constitute qualified floating rates under the OID Regulations), and the
characterization of a variable rate that is subject to a cap, floor or similar
restriction as a qualified floating rate for purposes of the REMIC Regulations
will not depend upon the OID Regulations relating to caps, floors, and similar
restrictions. See "REMIC Regular Certificates-Current Income on REMIC Regular
Certificates--Original Issue Discount---Variable Rate REMIC Regular
Certificates," below, for a discussion of the OID Regulations relating to caps,
floors and similar restrictions. A qualified floating rate, as defined above for
purposes of the REMIC Regulations (a "REMIC qualified floating rate"), qualifies
as a variable rate for purposes of the REMIC Regulations if such REMIC qualified
floating rate is set at a "current rate" as defined in the OID Regulations. In
addition, a rate equal to the highest, lowest or an average of two or more REMIC
qualified floating rates qualifies as a variable rate for REMIC purposes. A
REMIC Regular Certificate also may have a variable rate based on a weighted
average of the interest rates on some or all of the qualified mortgages held by
the REMIC where each qualified mortgage taken into account has a fixed rate or a
variable rate that is permissible under the REMIC Regulations. Further, a REMIC
Regular Certificate may have a rate that is the product of a REMIC qualified
floating rate or a weighted average rate and a fixed multiplier, is a constant
number of basis points more or less than a REMIC qualified floating rate or a
weighted average rate, or is the product, plus or minus a constant number of
basis points, of a REMIC qualified floating rate or a weighted average rate and
a fixed multiplier. An otherwise permissible variable rate for a REMIC Regular
Certificate, described above, will not lose its character as such because it is
subject to a floor or a cap, including a "funds available cap" as that term is
defined in the REMIC Regulations. Lastly, a REMIC Regular Certificate will be
considered as having a permissible variable rate if it has a fixed or otherwise
permissible variable rate during one or more payment or accrual periods and
different fixed or otherwise permissible variable rates during other payment or
accrual periods.
Original Issue Discount. REMIC Regular Certificates of certain series
may be issued with "original issue discount" within the meaning of Section
1273(a) of the Code. Holders of REMIC Regular Certificates issued with original
issue discount generally must include original issue discount in gross income
for federal income tax purposes as it accrues, in advance of receipt of the cash
attributable to such income, under a method that takes account of the
compounding of interest. The Code requires that information with respect to the
original issue discount accruing on any REMIC Regular Certificate be reported
periodically to the Internal Revenue Service and to certain categories of
holders of such REMIC Regular Certificates.
Each Trust will report original issue discount, if any, to the holders
of REMIC Regular Certificates based on the OID Regulations. OID Regulations
concerning contingent payment debt instruments do not apply to the REMIC Regular
Certificates.
The OID Regulations provide that, in the case of a debt instrument such
as a REMIC Regular Certificate, (i) the amount and rate of accrual of original
issue discount will be calculated based on a reasonable assumed prepayment rate
(the "Prepayment Assumption"), and (ii) adjustments will be made in the amount
and rate of accrual of such discount to reflect differences between the actual
prepayment rate and the Prepayment Assumption. The method for determining the
appropriate assumed prepayment rate will eventually be set forth in Treasury
regulations, but those regulations have not yet been issued. The applicable
legislative history indicates, however, that such regulations will provide that
the assumed prepayment rate for securities such as the REMIC Regular
Certificates will be the rate used in pricing the initial offering of the
securities. The Prospectus Supplement for each series of REMIC Regular
Certificates will specify the Prepayment Assumption, but no representation is
made that the REMIC Regular Certificates will, in fact, prepay at a rate based
on the Prepayment Assumption or at any other rate.
In general, a REMIC Regular Certificate will be considered to be
issued with original issue discount if its stated redemption price at maturity
exceeds its issue price. Except as discussed below under "Payment Lag REMIC
Regular Certificates; Initial Period Considerations" and "Qualified Stated
Interest," and in the case of certain Variable Rate REMIC Regular Certificates
(as defined below) and accrual certificates, the stated redemption price at
maturity of a REMIC Regular Certificate is its principal amount. The issue price
of a REMIC Regular Certificate is the initial offering price to the public
(excluding bond houses and brokers) at which a substantial amount of the class
of REMIC Regular Certificates was sold. The issue price will be reduced if any
portion of such price is allocable to a related Yield Supplement Agreement.
Notwithstanding the general definition of original issue discount, such discount
will be considered to be zero for any REMIC Regular Certificate on which such
discount is less than 0.25% of its stated redemption price at maturity
multiplied by its weighted average life. The weighted average life of a REMIC
Regular Certificate apparently is computed for purposes of this de minimis rule
as the sum, for all distributions included in the stated redemption price at
maturity of the REMIC Regular Certificate, of the amounts determined by
multiplying (i) the number of complete years (rounding down for partial years)
from the Closing Date to the date on which each such distribution is expected to
be made, determined under the Prepayment Assumption, by (ii) a fraction, the
numerator of which is the amount of such distribution and the denominator of
which is the REMIC Regular Certificate's stated redemption price at maturity.
The OID Regulations provide that holders will include any de minimis original
issue discount ratably as payments of stated principal are made on the REMIC
Regular Certificates.
The holder of a REMIC Regular Certificate issued with original issue
discount must include in gross income the sum of the "daily portions" of such
original issue discount for each day during its taxable year on which it held
such REMIC Regular Certificate. In the case of an original holder of a REMIC
Regular Certificate, the daily portions of original issue discount are
determined first by calculating the portion of the original issue discount that
accrued during each period (an "accrual period") that begins on the day
following a Remittance Date (or in the case of the first such period, begins on
the Closing Date) and ends on the next succeeding Remittance Date. The original
issue discount accruing during each accrual period is then allocated ratably to
each day during such period to determine the daily portion of original issue
discount for that day.
The portion of the original issue discount that accrues in any accrual
period will equal the excess, if any, of (i) the sum of (A) the present value,
as of the end of the accrual period, of all of the distributions to be made on
the REMIC Regular Certificate, if any, in future periods and (B) the
distributions made on the REMIC Regular Certificate during the accrual period
that are included in such REMIC Regular Certificate's stated redemption price at
maturity, over (ii) the adjusted issue price of such REMIC Regular Certificate
at the beginning of the accrual period. The present value of the remaining
distributions referred to in the preceding sentence will be calculated (i)
assuming that the REMIC Regular Certificates will be prepaid in future periods
at a rate computed in accordance with the Prepayment Assumption and (ii) using a
discount rate equal to the original yield to maturity of the REMIC Regular
Certificates. For these purposes, the original yield to maturity of the REMIC
Regular Certificates will be calculated based on their issue price and assuming
that the REMIC Regular Certificates will be prepaid in accordance with the
Prepayment Assumption. The adjusted issue price of a REMIC Regular Certificate
at the beginning of any accrual period will equal the issue price of such REMIC
Regular Certificate, increased by the portion of the original issue discount
that has accrued during prior accrual periods, and reduced by the amount of any
distributions made on such REMIC Regular Certificate in prior accrual periods
that were included in such REMIC Regular Certificate's stated redemption price
at maturity.
The daily portions of original issue discount may increase or decrease
depending on the extent to which the actual rate of prepayments diverges from
the Prepayment Assumption. If original issue discount accruing during any
accrual period computed as described above is negative, it is likely that a
holder will be entitled to offset such amount only against positive original
issue discount accruing on such REMIC Regular Certificate in future accrual
periods. Although Federal Tax Counsel is unable to opine with respect to this
matter, such a holder may be entitled to deduct a loss to the extent that its
remaining basis would exceed the maximum amount of future payments to which such
holder is entitled. It is unclear whether the Prepayment Assumption is taken
into account for this purpose.
A subsequent holder that purchases a REMIC Regular Certificate issued
with original issue discount at a cost less than its remaining stated redemption
price at maturity will also generally be required to include in gross income,
for each day on which it holds such REMIC Regular Certificate, the daily
portions of original issue discount with respect to the REMIC Regular
Certificate, calculated as described above. However, if (i) the excess of the
remaining stated redemption price at maturity over such cost is less than (ii)
the aggregate amount of such daily portions for all days after the date of
purchase until final retirement of such REMIC Regular Certificate, then such
daily portions will be reduced proportionately in determining the income of such
holder.
Qualified Stated Interest. Interest payable on a REMIC Regular
Certificate which qualifies as "qualified stated interest" for purposes of the
OID Regulations will not be includible in the stated redemption price at
maturity of the REMIC Regular Certificate. Accordingly, if the interest on a
REMIC Regular Certificate does not constitute "qualified stated interest," the
REMIC Regular Certificate will have original issue discount. Interest payments
will not qualify as qualified stated interest unless the interest payments are
"unconditionally payable." The OID Regulations state that interest is
unconditionally payable if reasonable legal remedies exist to compel timely
payment, or the debt instrument otherwise provides terms and conditions that
make the likelihood of late payment (other than a late payment that occurs
within a reasonable grace period) or nonpayment of interest a remote
contingency, as defined in the OID Regulations. It is unclear whether the terms
and conditions of the Mortgage Assets underlying the REMIC Regular Certificates
or the terms and conditions of the REMIC Regular Certificates are considered
when determining whether the likelihood of late payment or nonpayment of
interest is a remote contingency. Any terms or conditions that do not reflect
arm's length dealing or that the holder does not intend to enforce are not
considered. Accordingly, Federal Tax Counsel is unable to opine whether interest
payments on REMIC Regular Certificates that otherwise would not be treated as
having original issue discount would be considered to have original issue
discount because there are not reasonable remedies to compel timely payment of
interest or terms or conditions that would make the likelihood of late payment
or nonpayment remote.
Premium. A purchaser of a REMIC Regular Certificate that purchases such
REMIC Regular Certificate at a cost greater than its remaining stated redemption
price at maturity will be considered to have purchased such REMIC Regular
Certificate at a premium, and may, under Section 171 of the Code, elect to
amortize such premium under a constant yield method over the life of the REMIC
Regular Certificate. The Prepayment Assumption is probably taken into account in
determining the life of the REMIC Regular Certificate for this purpose. Except
as provided in regulations, amortizable premium will be treated as an offset to
interest income on the REMIC Regular Certificate.
Payment Lag REMIC Regular Certificates; Initial Period Considerations.
Certain REMIC Regular Certificates will provide for distributions of interest
based on a period that is the same length as the interval between Remittance
Dates but ends prior to each Remittance Date. Any interest that accrues prior to
the Closing Date may be treated under the OID Regulations either (i) as part of
the issue price and the stated redemption price at maturity of the REMIC Regular
Certificates or (ii) as not included in the issue price or the stated redemption
price. The OID Regulations provide a special application of the de minimis rule
for debt instruments with long first accrual periods where the interest payable
for the first period is at a rate which is effectively less than that which
applies in all other periods. In such cases, for the sole purpose of determining
whether original issue discount is de minimis, the OID Regulations provide that
the stated redemption price is equal to the instrument's issue price plus the
greater of the amount of foregone interest or the excess (if any) of the
instrument's stated principal amount over its issue price.
Variable Rate REMIC Regular Certificates. Under the OID Regulations,
REMIC Regular Certificates paying interest at a variable rate (a "Variable Rate
REMIC Regular Certificate") are subject to special rules. A Variable Rate REMIC
Regular Certificate will qualify as a "variable rate debt instrument" if (i) its
issue price does not exceed the total noncontingent principal payments due under
the Variable Rate REMIC Regular Certificate by more than a specified de minimis
amount; (ii) it provides for stated interest, paid or compounded at least
annually, at (a) one or more qualified floating rates, (b) a single fixed rate
and one or more qualified floating rates, (c) a single objective rate or (d) a
single fixed rate and a single objective rate that is a qualified inverse
floating rate; and (iii) it does not provide for any principal payments that are
contingent, as defined in the OID Regulations, except as provided in (i), above.
Because the OID Regulations relating to contingent payment debt instruments do
not apply to REMIC regular interests, principal payments on the REMIC Regular
Certificates should not be considered contingent for this purpose.
A "qualified floating rate" is any variable rate where variations in
the value of such rate can reasonably be expected to measure contemporaneous
variations in the cost of newly borrowed funds in the currency in which the
Variable Rate REMIC Regular Certificate is denominated. A multiple of a
qualified floating rate will generally not itself constitute a qualified
floating rate for purposes of the OID Regulations. However, a variable rate
equal to (i) the product of a qualified floating rate and a fixed multiple that
is greater than 0.65 but not more than 1.35 or (ii) the product of a qualified
floating rate and a fixed multiple that is greater than 0.65 but not more than
1.35, increased or decreased by a fixed rate will constitute a qualified
floating rate for purposes of the OID Regulations. In addition, under the OID
Regulations, two or more qualified floating rates that can reasonably be
expected to have approximately the same values throughout the term of the
Variable Rate REMIC Regular Certificate will be treated as a single qualified
floating rate (a "Presumed Single Qualified Floating Rate"). Two or more
qualified floating rates with values within 25 basis points of each other as
determined on the Variable Rate REMIC Regular Certificate's issue date will be
conclusively presumed to be a Presumed Single Qualified Floating Rate.
Notwithstanding the foregoing, a variable rate that would otherwise constitute a
qualified floating rate but which is subject to one or more restrictions such as
a cap or floor, will not be a qualified floating rate for purposes of the OID
Regulations unless the restriction is fixed throughout the term of the Variable
Rate REMIC Regular Certificate or the restriction is not reasonably expected as
of the issue date to significantly affect the yield of the Variable Rate REMIC
Regular Certificate.
An "objective rate" is a rate that is not itself a qualified floating
rate but which is determined using a single fixed formula and which is based
upon objective financial or economic information. The OID Regulations also
provide that other variable rates may be treated as objective rates if so
designated by the Internal Revenue Service in the future. An interest rate on a
REMIC Regular Certificate that is the weighted average of the interest rates on
some or all of the qualified mortgages held by the REMIC should constitute an
objective rate. Despite the foregoing, a variable rate of interest on a Variable
Rate REMIC Regular Certificate will not constitute an objective rate if it is
reasonably expected that the average value of such rate during the first half of
the Variable Rate REMIC Regular Certificate's term will be either significantly
less than or significantly greater than the average value of the rate during the
final half of the Variable Rate REMIC Regular Certificate's term. Further, an
objective rate does not include a rate that is based on information that is
within the control of the issuer (or a party related to the issuer) or that is
unique to the circumstances of the issuer (or a party related to the issuer). An
objective rate will qualify as a "qualified inverse floating rate" if such rate
is equal to a fixed rate minus a qualified floating rate and variations in the
rate can reasonably be expected to inversely reflect contemporaneous variations
in the qualified floating rate. The OID Regulations also provide that if a
Variable Rate REMIC Regular Certificate provides for stated interest at a fixed
rate for an initial period of less than one year followed by a variable rate
that is either a qualified floating rate or an objective rate and if the
variable rate on the Variable Rate REMIC Regular Certificate's issue date is
intended to approximate the fixed rate, then the fixed rate and the variable
rate together will constitute either a single qualified floating rate or
objective rate, as the case may be (a "Presumed Single Variable Rate"). If the
value of the variable rate and the initial fixed rate are within 25 basis points
of each other as determined on the Variable Rate REMIC Regular Certificate's
issue date, the variable rate will be conclusively presumed to approximate the
fixed rate.
For Variable Rate REMIC Regular Certificates that qualify as a
"variable rate debt instrument" under the OID Regulations and provide for
interest at either a single qualified floating rate, a single objective rate, a
Presumed Single Qualified Floating Rate or a Presumed Single Variable Rate
throughout the term (a "Single Variable Rate REMIC Regular Certificate"),
original issue discount is computed as described in "REMIC Regular Certificates-
Current Income on REMIC Regular Certificates--Original Issue Discount" based on
the following: (i) stated interest on the Single Variable Rate REMIC Regular
Certificate which is unconditionally payable in cash or property (other than
debt instruments of the issuer) at least annually will constitute qualified
stated interest; (ii) by assuming that the variable rate on the Single Variable
Rate REMIC Certificate is a fixed rate equal to: (a) in the case of a Single
Variable Rate REMIC Regular Certificate with a qualified floating rate or a
qualified inverse floating rate, the value of, as of the issue date, of the
qualified floating rate or the qualified inverse floating rate or (b) in the
case of a Single Variable Rate REMIC Regular Certificate with an objective rate
(other than a qualified inverse floating rate), a fixed rate which reflects the
reasonably expected yield for such Single Variable Rate REMIC Regular
Certificate; and (iii) the qualified stated interest allocable to an accrual
period is increased (or decreased) if the interest actually paid during an
accrual period exceeds (or is less than) the interest assumed to be paid under
the assumed fixed rate described in (ii), above.
In general, any Variable Rate REMIC Regular Certificate other than a
Single Variable Rate REMIC Regular Certificate (a "Multiple Variable Rate REMIC
Regular Certificate") that qualifies as a "variable rate debt instrument" will
be converted into an "equivalent" fixed rate debt instrument for purposes of
determining the amount and accrual of original issue discount and qualified
stated interest on the Multiple Variable Rate REMIC Regular Certificate. The OID
Regulations generally require that such a Multiple Variable Rate REMIC Regular
Certificate be converted into an "equivalent" fixed rate debt instrument by
substituting any qualified floating rate or qualified inverse floating rate
provided for under the terms of the Multiple Variable Rate REMIC Regular
Certificate with a fixed rate equal to the value of the qualified floating rate
or qualified inverse floating rate, as the case may be, as of the Multiple
Variable Rate REMIC Regular Certificate's issue date. Any objective rate (other
than a qualified inverse floating rate) provided for under the terms of the
Multiple Variable Rate REMIC Regular Certificate is converted into a fixed rate
that reflects the yield that is reasonably expected for the Multiple Variable
Rate REMIC Regular Certificate. In the case of a Multiple Variable Rate REMIC
Regular Certificate that qualifies as a "variable rate debt instrument" and
provides for stated interest at a fixed rate in addition to either one or more
qualified floating rates or a qualified inverse floating rate, the fixed rate is
initially converted into a qualified floating rate (or a qualified inverse
floating rate, if the Multiple Variable Rate REMIC Regular Certificate provides
for a qualified inverse floating rate). Under such circumstances, the qualified
floating rate or qualified inverse floating rate that replaces the fixed rate
must be such that the fair market value of the Multiple Variable Rate REMIC
Regular Certificate as of the Multiple Variable Rate REMIC Regular Certificate's
issue date is approximately the same as the fair market value of an otherwise
identical debt instrument that provides for either the qualified floating rate
or qualified inverse floating rate rather than the fixed rate. Subsequent to
converting the fixed rate into either a qualified floating rate or a qualified
inverse floating rate, the Multiple Variable Rate REMIC Regular Certificate is
then converted into an "equivalent" fixed rate debt instrument in the manner
described above.
Once the Multiple Variable Rate REMIC Regular Certificate is converted
into an "equivalent" fixed rate debt instrument pursuant to the foregoing rules,
the amount of original issue discount and qualified stated interest, if any, are
determined for the "equivalent" fixed rate debt instrument by applying the
original issue discount rules to the "equivalent" fixed rate debt instrument in
the manner described in "REMIC Regular Certificates-Current Income on REMIC
Regular Certificates--Original Issue Discount". A holder of the Multiple
Variable Rate REMIC Regular Certificate will account for such original issue
discount and qualified stated interest as if the holder held the "equivalent"
fixed rate debt instrument. In each accrual period, appropriate adjustments will
be made to the amount of qualified stated interest or original issue discount
assumed to have been accrued or paid with respect to the "equivalent" fixed rate
debt instrument in the event that such amounts differ from the actual amount of
interest accrued or paid on the Multiple Variable Rate REMIC Regular Certificate
during the accrual period.
If a Variable Rate REMIC Regular Certificate does not qualify as a
"variable rate debt instrument" under the OID Regulations, then the Variable
Rate REMIC Regular Certificate would be treated as a contingent payment debt
obligation. Federal Tax Counsel is unable to opine how a Variable Rate REMIC
Regular Certificate would be taxed if such REMIC Regular Certificate were
treated as a contingent payment debt obligation, since the OID Regulations
relating to contingent payment debt obligations do not apply to REMIC regular
interests.
Interest-Only REMIC Regular Certificates. The Trust intends to report
income from interest-only classes of REMIC Regular Certificates to the Internal
Revenue Service and to holders of interest-only REMIC Regular Certificates based
on the assumption that the stated redemption price at maturity is equal to the
sum of all payments determined under the Prepayment Assumption. As a result,
such interest-only REMIC Regular Certificates will be treated as having original
issue discount.
Market Discount. A holder that acquires a REMIC Regular Certificate at
a market discount (that is, a discount that exceeds any unaccrued original issue
discount) will recognize gain upon receipt of a principal distribution,
regardless of whether the distribution is scheduled or is a prepayment. In
particular, the REMIC Regular Certificateholder will be required to allocate
that principal distribution first to the portion of the market discount on such
REMIC Regular Certificate that has accrued but has not previously been
includible in income, and will recognize ordinary income to that extent. In
general terms, unless Treasury regulations when issued state otherwise, market
discount on a REMIC Regular Certificate may be treated, at the REMIC
Certificateholder's election, as accruing either (i) under a constant yield
method, taking into account the Prepayment Assumption, or (ii) in proportion to
accruals of original issue discount (or, if there is no original issue discount,
in proportion to stated interest at the Pass Through Rate or Interest Rate).
In addition, a holder may be required to defer deductions for a portion
of the holder's interest expense on any debt incurred or continued to purchase
or carry a REMIC Regular Certificate purchased with market discount. The
deferred portion of any interest deduction would not exceed the portion of the
market discount on the REMIC Regular Certificate that accrues during the taxable
year in which such interest would otherwise be deductible and, in general, would
be deductible when such market discount is included in income upon receipt of a
principal distribution on, or upon the sale of, the REMIC Regular Certificate.
The Code requires that information necessary to compute accruals of market
discount be reported periodically to the Internal Revenue Service and to certain
categories of holders of REMIC Regular Certificates.
Notwithstanding the above rules, market discount on a REMIC Regular
Certificate will be considered to be zero if such discount is less than 0.25% of
the remaining stated redemption price at maturity of such REMIC Regular
Certificate multiplied by its weighted average remaining life. Weighted average
remaining life presumably is calculated in a manner similar to weighted average
life (described above under "Current Income on REMIC Regular
Certificates-Original Issue Discount"), taking into account distributions
(including prepayments) prior to the date of acquisition of such REMIC Regular
Certificate by the subsequent purchaser. If market discount on a REMIC Regular
Certificate is treated as zero under this rule, the actual amount of such
discount must be allocated to the remaining principal distributions on the REMIC
Regular Certificate, and when each such distribution is made, gain equal to the
discount, if any, allocated to the distribution will be recognized.
Election to Treat All Interest Under the Constant Yield Rules. The OID
Regulations provide that all holders may elect to include in gross income all
interest that accrues on a debt instrument issued after April 4, 1994 by using
the constant yield method. For purposes of this election, interest includes
stated interest, original issue discount, and market discount, as adjusted to
account for any premium. Holders should consult their own tax advisors regarding
the availability or advisability of such an election.
Sales of REMIC Regular Certificates. If a REMIC Regular Certificate is
sold, the seller will recognize gain or loss equal to the difference between the
amount realized on the sale and its adjusted basis in the REMIC Regular
Certificate. A holder's adjusted basis in a REMIC Regular Certificate generally
equals the cost of the REMIC Regular Certificate to the holder, increased by
income reported by the holder with respect to the REMIC Regular Certificate and
reduced (but not below zero) by distributions on the REMIC Regular Certificate
received by the holder and by amortized premium. Except as indicated in the next
two paragraphs, any such gain or loss generally will be capital gain or loss
provided the REMIC Regular Certificate is held as a capital asset.
Gain from the sale of a REMIC Regular Certificate that might otherwise
be capital gain will be treated as ordinary income to the extent that such gain
does not exceed the excess, if any, of (i) the amount that would have been
includible in the seller's income with respect to the REMIC Regular Certificate
had income accrued thereon at a rate equal to 110% of "the applicable Federal
rate" (generally, an average of current yields on Treasury securities),
determined as of the date of purchase of the REMIC Regular Certificate, over
(ii) the amount actually includible in the seller's income. In addition, gain
recognized on the sale of a REMIC Regular Certificate by a seller who purchased
the REMIC Regular Certificate at a market discount would be taxable as ordinary
income in an amount not exceeding the portion of such discount that accrued
during the period the REMIC Regular Certificate was held by such seller, reduced
by any market discount includible in income under the rules described above
under "Current Income on REMIC Regular Certificates--Market Discount."
REMIC Regular Certificates will be "evidences of indebtedness" within
the meaning of Section 582(c)(1) of the Code, so that gain or loss recognized
from a sale of a REMIC Regular Certificate by a bank or other financial
institution to which such section applies would be ordinary income or loss.
Termination. The REMIC will terminate shortly following the REMIC's
receipt of the final payment in respect of the Mortgage Assets. The last
distribution on a REMIC Regular Certificate should be treated as a payment in
full retirement of a debt instrument.
TAX TREATMENT OF YIELD SUPPLEMENT AGREEMENTS
Whether a REMIC Regular Certificateholder of a series will have a
separate contractual right to payments under a Yield Supplement Agreement, and
the tax treatment of such payments, if any, will be addressed in the related
Prospectus Supplement.
REMIC RESIDUAL CERTIFICATES
Because the REMIC Residual Certificates will be treated as "residual
interests" in the REMIC, each holder of a REMIC Residual Certificate will be
required to take into account its daily portion of the taxable income or net
loss of the REMIC for each day during the calendar year on which it holds its
REMIC Residual Certificate. The daily portion is determined by allocating to
each day in a calendar quarter a ratable portion of the taxable income or net
loss of the REMIC for that quarter and allocating such daily amounts among the
holders on such day in proportion to their holdings. All income or loss of the
REMIC taken into account by a REMIC Residual Certificateholder must be treated
as ordinary income or loss as the case may be. Income from residual interests is
"portfolio income" which cannot be offset by "passive activity losses" in the
hands of individuals or other persons subject to the passive loss rules. The
Code also provides that all residual interests must be issued on the REMIC's
startup day and designated as such. For this purpose, "startup day" means the
day on which the REMIC issues all of its regular and residual interests, and
under the REMIC Regulations may, in the case of a REMIC to which property is
contributed over a period of up to ten consecutive days, be any day designated
by the REMIC within such period.
The taxable income of the REMIC, for purposes of determining the
amounts taken into account by holders of REMIC Residual Certificates, is
determined in the same manner as in the case of an individual, with certain
exceptions. The accrual method of accounting must be used and the taxable year
of the REMIC must be the calendar year. The basis of property contributed to the
REMIC in exchange for regular or residual interests is its fair market value
immediately after the transfer. The REMIC Regulations determine the fair market
value of the contributed property by deeming it equal to the aggregate issue
prices of all regular and residual interests in the REMIC.
A REMIC Regular Certificate will be considered indebtedness of the
REMIC. Market discount on any of the Mortgage Assets held by the REMIC must be
included in the income of the REMIC as it accrues, rather than being included in
income only upon sale of the Mortgage Assets or as principal on the Mortgage
Assets is paid. The REMIC is not entitled to any personal exemptions or to
deductions for taxes paid to foreign countries and U.S. possessions, charitable
contributions or net operating losses, or to certain other deductions to which
individuals are generally entitled. Income or loss in connection with a
"prohibited transaction" is disregarded. See "Prohibited Transactions."
As previously discussed, the timing of recognition of negative original
issue discount, if any, on a REMIC Regular Certificate is uncertain. As a
result, the timing of recognition of the REMIC taxable income related to a REMIC
Residual Certificate is also uncertain. Although Federal Tax Counsel is unable
to opine as to this matter, the related REMIC taxable income may be recognized
when the adjusted issue price of such REMIC Regular Certificate would exceed the
maximum amount of future payments with respect to such REMIC Regular
Certificate. It is unclear whether the Prepayment Assumption is taken into
account for this purpose.
A REMIC Residual Certificate has a tax basis in its holder's hands that
is distinct from the REMIC's basis in its assets. The tax basis of a REMIC
Residual Certificate in its holder's hands will be its cost (i.e., the purchase
price of the REMIC Residual Certificate), and will be reduced (but not below
zero) by the holder's share of cash distributions and losses and increased by
its share of taxable income from the REMIC.
If, in any year, cash distributions to a holder of a REMIC Residual
Certificate exceed its share of the REMIC's taxable income, the excess will
constitute a return of capital to the extent of the holder's basis in its REMIC
Residual Certificate. A return of capital is not treated as income for federal
income tax purposes, but will reduce the tax basis of the holder in its REMIC
Residual Certificate (but not below zero). If a REMIC Residual Certificate's
basis is reduced to zero, any cash distributions with respect to that REMIC
Residual Certificate in any taxable year in excess of its share of the REMIC's
income would be taxable to the holder as gain on the sale or exchange of its
interest in the REMIC.
The losses of the REMIC taken into account by a holder of a REMIC
Residual Certificate in any quarter may not exceed the holder's basis in its
REMIC Residual Certificate. Any excess losses may be carried forward
indefinitely to future quarters subject to the same limitation.
There is no REMIC counterpart to the partnership election under Code
Section 754 to increase or decrease the partnership's basis in its assets by
reference to the adjusted basis to subsequent partners of their partnership
interest. Consequently, a subsequent purchaser of a REMIC Residual Certificate
at a premium will not be able to use the premium to reduce his share of the
REMIC's taxable income.
Mismatching of Income and Deductions; Excess Inclusions. The taxable
income recognized by the holder of a REMIC Residual Certificate in any taxable
year will be affected by, among other factors, the relationship between the
timing of recognition of interest and discount income (or deductions for
amortization of premium) with respect to Mortgage Assets, on the one hand, and
the timing of deductions for interest (including original issue discount) on the
REMIC Regular Certificates, on the other. In the case of multiple classes of
REMIC Regular Certificates issued at different yields, and having different
weighted average lives, taxable income recognized by the holders of REMIC
Residual Certificates may be greater than cash flow in earlier years of the
REMIC (with a corresponding taxable loss or less taxable income than cash flow
in later years). This may result from the fact that interest expense deductions,
expressed as a percentage of the outstanding principal amount of the REMIC
Regular Certificates, will increase over time as the shorter term, lower
yielding classes of REMIC Regular Certificates are paid, whereas interest income
from the Mortgage Assets may not increase over time as a percentage of the
outstanding principal amount of the Mortgage Assets.
In the case of Tiered REMICs, the OID Regulations provide that the
regular interests in the REMIC which directly owns the Mortgage Assets (the
"Lower Tier REMIC") will be treated as a single debt instrument for purposes of
the original issue discount provisions. Therefore, the Trust will calculate the
taxable income of Tiered REMICs by treating the Lower Tier REMIC regular
interests as a single debt instrument.
Any "excess inclusions" with respect to a REMIC Residual Certificate
will be subject to certain special rules. The excess inclusions with respect to
a REMIC Residual Certificate are equal to the excess, if any, of its share of
REMIC taxable income for the quarterly period over the sum of the daily accruals
for such quarterly period. The daily accrual for any day on which the REMIC
Residual Certificate is held is determined by allocating to each day in a
quarter its allocable share of the product of (A) 120% of the long-term
applicable Federal rate (for quarterly compounding) that would have applied to
the REMIC Residual Certificates (if they were debt instruments) on the closing
date under Code Section 1274(d)(1) and (B) the adjusted issue price of such
REMIC Residual Certificates at the beginning of a quarterly period. For this
purpose, the adjusted issue price of such REMIC Residual Certificate at the
beginning of a quarterly period is the issue price of such Certificates plus the
amount of the daily accruals of REMIC taxable income for all prior quarters,
decreased by any distributions made with respect to such Certificates prior to
the beginning of such quarterly period.
The excess inclusions of a REMIC Residual Certificate may not be offset
by other deductions, including net operating loss carryforwards, on a holder's
return.
Recently enacted provisions governing the relationship between excess
inclusions and the alternative minimum tax provide that (i) the alternative
minimum taxable income of a taxpayer is based on the taxpayer's regular taxable
income computed without regard to the rule that taxable income cannot be less
than the amount of excess inclusions, (ii) the alternative minimum taxable
income of a taxpayer for a taxable year cannot be less than the amount of excess
inclusions for that year, and (iii) the amount of any alternative minimum tax
net operating loss is computed without regard to any excess inclusions. While
these provisions are generally effective for tax years beginning after December
31, 1986, a taxpayer may elect to have these provisions apply only with respect
to tax years beginning after August 20, 1996.
If the holder of a REMIC Residual Certificate is an organization
subject to the tax on unrelated business income imposed by Code Section 511, the
excess inclusions will be treated as unrelated business taxable income of such
holder for purposes of Code Section 511. In addition, the Code provides that
under Treasury regulations, if a real estate investment trust ("REIT") owns a
REMIC Residual Certificate, to the extent excess inclusions of the REIT exceed
its real estate investment trust taxable income (excluding net capital gains),
the excess inclusions would be allocated among the shareholders of the REIT in
proportion to the dividends received by the shareholders from the REIT. Excess
inclusions derived by regulated investment companies ("RICs"), common trust
funds, and subchapter T cooperatives must be allocated to the shareholders of
such entities using rules similar to those applicable to REITs. The Internal
Revenue Service has not yet adopted or proposed such regulations as to REITs,
RICs, or similar entities. A life insurance company cannot adjust its reserve
with respect to variable contracts to the extent of any excess inclusion, except
as provided in regulations.
The Internal Revenue Service has authority to promulgate regulations
providing that if the aggregate value of the REMIC Residual Certificates is not
considered to be "significant," then the entire share of REMIC taxable income of
a holder of a REMIC Residual Certificate may be treated as excess inclusions
subject to the foregoing limitations.
This authority has not been exercised to date.
The REMIC is subject to tax at a rate of 100 percent on any net income
it derives from "prohibited transactions." In general, "prohibited transaction"
means the disposition of a Mortgage Asset other than pursuant to specified
exceptions, the receipt of income as compensation for services, the receipt of
income from a source other than a Mortgage Loan or certain other permitted
investments, or gain from the disposition of an asset representing a temporary
investment of payments on the Mortgage Assets pending distribution on the REMIC
Certificates. In addition, a tax is imposed on the REMIC equal to 100 percent of
the value of certain property contributed to the REMIC after its "startup day."
No REMIC in which interests are offered hereunder will accept contributions that
would cause it to be subject to such tax. This provision will not affect the
REMIC's ability to accept substitute Mortgage Loans or to sell defective
Mortgage Loans in accordance with the Agreement.
A REMIC is subject to a tax (deductible from its income) on any "net
income from foreclosure property" (determined in accordance with Section
857(b)(4)(B) of the Code as if the REMIC were a REIT).
Any tax described in the two preceding paragraphs that may be imposed
on the Trust initially would be borne by the REMIC Residual Certificates in the
related REMIC rather than by the REMIC Regular Certificateholders, unless
otherwise specified in the Prospectus Supplement.
Dealers' Ability to Mark-to-Market REMIC Residual Certificates.
Treasury regulations provide that all REMIC Residual Certificates acquired on or
after January 4, 1995, and similar interests or arrangements acquired on or
after January 4, 1995 that are determined by the Commissioner to have
substantially the same economic effect as a REMIC Residual Certificate, are not
securities and cannot be marked to market pursuant to Section 475 of the Code.
TRANSFERS OF REMIC RESIDUAL CERTIFICATES
Tax on Disposition of REMIC Residual Certificates. The sale of a REMIC
Residual Certificate by a holder will result in gain or loss equal to the
difference between the amount realized on the sale and the adjusted basis of the
REMIC Residual Certificate.
If the seller of a REMIC Residual Certificate held the REMIC Residual
Certificate as a capital asset, the gain or loss generally will be capital gain
or loss. However, under Code Section 582(c), the sale of a REMIC Residual
Certificate by certain banks and other financial institutions will be considered
a sale of property other than a capital asset, resulting in ordinary income or
loss. Although Federal Tax Counsel is unable to opine with respect to the tax
treatment of a REMIC Residual Certificate that has unrecovered basis after all
funds of the Trust have been distributed, the holder may be entitled to claim a
loss in the amount of the unrecovered basis.
The Code provides that, except as provided in Treasury regulations
(which have not yet been issued), if a holder sells a REMIC Residual Certificate
and acquires the same or other REMIC Residual Certificates, residual interests
in another REMIC, or any similar interests in a "taxable mortgage pool" (as
defined in Section 7701(i) of the Code) during the period beginning six months
before, and ending six months after, the date of such sale, such sale will be
subject to the "wash sale" rules of Section 1091 of the Code. In that event, any
loss realized by the seller on the sale generally will not be currently
deductible.
A tax is imposed on the transfer of any residual interest in a REMIC to
a "disqualified organization." The tax is imposed on the transferor, or, where
the transfer is made through an agent of the disqualified organization, on the
agent. "Disqualified organizations" include for this purpose the United States,
any State or political subdivision thereof, any foreign government, any
international organization or agency or instrumentality of the foregoing (with
an exception for certain taxable instrumentalities of the United States, of a
State or of a political subdivision thereof), any rural electrical and telephone
cooperative, and any tax-exempt entity (other than certain farmers'
cooperatives) not subject to the tax on unrelated business income.
The amount of tax to be paid by the transferor on a transfer to a
disqualified organization is equal to the present value of the total anticipated
excess inclusions with respect to the interest transferred for periods after
such transfer multiplied by the highest corporate rate of tax. The transferor
(or agent, as the case may be) will be relieved of liability so long as the
transferee furnishes an affidavit that it is not a disqualified organization and
the transferor or agent does not have actual knowledge that the affidavit is
false. Under the REMIC Regulations, an affidavit will be sufficient if the
transferee furnishes (A) a social security number, and states under penalties of
perjury that the social security number is that of the transferee, or (B) a
statement under penalties of perjury that it is not a disqualified organization.
Treatment of Payments to a Transferee in Consideration of Transfer of a
REMIC Residual Certificate. The federal income tax consequences of any
consideration paid to a transferee on a transfer of an interest in a REMIC
Residual Certificate are unclear and Federal Tax Counsel is unable to opine with
respect to this issue. The preamble to the REMIC Regulations indicates that the
Internal Revenue Service is considering the tax treatment of these types of
residual interests. A transferee of such an interest should consult its own tax
advisors.
Restrictions on Transfer; Holding by Pass-Through Entities. An entity
cannot qualify as a REMIC absent reasonable arrangements designed to ensure that
(1) residual interests in such entity are not held by disqualified organizations
and (2) information necessary to calculate the tax due on transfers to
disqualified organizations (i.e., a computation of the present value of the
excess inclusions) is made available by the REMIC. The governing instruments of
a Trust will contain provisions designed to ensure the foregoing, and any
transferee of a REMIC Residual Certificate must execute and deliver an affidavit
stating that neither the transferee nor any person for whose account such
transferee is acquiring the REMIC Residual Certificate is a disqualified
organization. In addition, as to the requirement that reasonable arrangements be
made to ensure that disqualified organizations do not hold a residual interest
in the REMIC, the REMIC Regulations require that notice of the prohibition be
provided either through a legend on the certificate that evidences ownership, or
through a conspicuous statement in the prospectus or other offering document
used to offer the residual interest for sale. As to the requirement that
sufficient information be made available to calculate the tax on transfers to
disqualified organizations (or the tax, discussed below, on pass-through
entities, interests in which are held by disqualified organizations), the REMIC
Regulations further require that such information also be provided to the
Internal Revenue Service.
A tax is imposed on "pass-through entities" holding residual interests
where a disqualified organization is a record holder of an interest in the
pass-through entity. "Pass-through entity" is defined for this purpose to
include RICs, REITs, common trust funds, partnerships, trusts, estates and
subchapter T cooperatives. Except as provided in regulations, nominees holding
interests in a "pass-through entity" for another person will also be treated as
"pass-through entities" for this purpose. The tax is equal to the amount of
excess inclusions allocable to the disqualified organization for the taxable
year multiplied by the highest corporate rate of tax, and is deductible by the
"pass-through entity" against the gross amount of ordinary income of the entity.
The Agreement provides that any attempted transfer of a beneficial or
record interest in a REMIC Residual Certificate will be null and void unless the
proposed transferee provides to the Trustee an affidavit that such transferee is
not a disqualified organization.
Legislation has been introduced which would provide that partners of
certain partnerships having a large number of partners will be treated as
disqualified organizations for purposes of the tax imposed on pass-through
entities if such partnerships hold residual interests in a REMIC. When
applicable, the legislation would disallow 70 percent of a large partnership's
miscellaneous itemized deductions, including deductions for servicing and
guaranty fees and any expenses of the REMIC, although the remaining deductions
would not be subject to the 2 percent floor applicable to individual partners.
See "Deductibility of Trust Expenses" below. No prediction can be made regarding
whether such legislation will be enacted.
The REMIC Regulations provide that a transfer of a "noneconomic
residual interest" will be disregarded for all federal income tax purposes
unless impeding the assessment or collection of tax was not a significant
purpose of the transfer. A residual interest will be treated as a "noneconomic
residual interest" unless, at the time of the transfer (1) the present value of
the expected future distributions on the residual interest at least equals the
product of (x) the present value of all anticipated excess inclusions with
respect to the residual interest and (y) the highest corporate tax rate,
currently 35 percent, and (2) the transferor reasonably expects that for each
anticipated excess inclusion, the transferee will receive distributions from the
REMIC, at or after the time at which taxes on such excess inclusion accrue,
sufficient to pay the taxes thereon. A significant purpose to impede the
assessment or collection of tax exists if the transferor, at the time of the
transfer, either knew or should have known (had "improper knowledge") that the
transferee would be unwilling or unable to pay taxes due on its share of the
taxable income of the REMIC. A transferor will be presumed not to have improper
knowledge if (i) the transferor conducts, at the time of the transfer, a
reasonable investigation of the financial condition of the transferee and, as a
result of the investigation, the transferor finds that the transferee has
historically paid its debts as they came due and finds no significant evidence
to indicate that the transferee will not continue to pay its debts as they come
due in the future, and (ii) the transferee represents to the transferor that (A)
the transferee understands that it might incur tax liabilities in excess of any
cash received with respect to the residual interest and (B) the transferee
intends to pay the taxes associated with owning the residual interest as they
come due. A different formulation of this rule applies to transfers of REMIC
Residual Certificates by or to foreign transferees. See "Foreign Investors"
below.
DEDUCTIBILITY OF TRUST EXPENSES
A holder that is an individual, estate or trust will be subject to the
limitation with respect to certain itemized deductions described in Code Section
67, to the extent that such deductions, in the aggregate, do not exceed two
percent of the holder's adjusted gross income, and such holder may not be able
to deduct such fees and expenses to any extent in computing such holder's
alternative minimum tax liability. In addition, the amount of itemized
deductions otherwise allowable for the taxable year for an individual whose
adjusted gross income exceeds the applicable amount (which amount will be
adjusted for inflation for taxable years beginning after 1990) will be reduced
by the lesser of (i) 3 percent of the excess of adjusted gross income over the
applicable amount, or (ii) 80 percent of the amount of itemized deductions
otherwise allowable for such taxable year. Such deductions will include
servicing, guarantee, and administrative fees paid to the servicer of the
Mortgage Loans. These deductions will be allocated entirely to the holders of
the REMIC Residual Certificates in the case of REMIC Trusts with multiple
classes of REMIC Regular Certificates that do not pay their principal amounts
ratably. As a result, the REMIC will report additional taxable income to holders
of REMIC Residual Certificates in an amount equal to their allocable share of
such deductions, and individuals, estates, or trusts holding an interest in such
REMIC Residual Certificates may have taxable income in excess of the cash
received. In the case of a "single-class REMIC," the expenses will be allocated,
under Treasury regulations, among the holders of the REMIC Regular Certificates
and the REMIC Residual Certificates on a daily basis in proportion to the
relative amounts of income accruing to each Certificateholder on that day. In
the case of a holder of a REMIC Regular Certificate who is an individual or a
"pass-through interest holder" (including certain pass-through entities, but not
including real estate investment trusts), the deductibility of such expenses
will be subject to the limitations described above. The reduction or
disallowance of these deductions may have a significant impact on the yield of
REMIC Regular Certificates to such a holder. In general terms, a single-class
REMIC is one that either (i) would qualify, under existing Treasury regulations,
as a grantor trust if it were not a REMIC (treating all interests as ownership
interests, even if they would be classified as debt for federal income tax
purposes) or (ii) is similar to such a trust and which is structured with the
principal purpose of avoiding the single- class REMIC rules.
FOREIGN INVESTORS
REMIC Regular Certificates. Except as discussed below, a holder of a
REMIC Regular Certificate who is not a "United States person" (as defined below)
generally will not be subject to United States income or withholding tax in
respect of a distribution on a REMIC Regular Certificate, provided that (i) the
holder complies to the extent necessary with certain identification
requirements, including timely delivery of a statement, signed by the holder of
the REMIC Regular Certificate under penalties of perjury, certifying that the
holder of the REMIC Regular Certificate is not a United States person and
providing the name and address of the holder, (ii) the holder is not a
"10-percent shareholder" within the meaning of Code Section 871(h)(3)(B), which
could be interpreted to apply to a holder of a REMIC Regular Certificate who
holds a direct or indirect 10 percent interest in the REMIC Residual
Certificates, (iii) the holder is not a "controlled foreign corporation" (as
defined in the Code) related to the REMIC or related to a 10 percent holder of a
residual interest in the REMIC, and (iv) the holder is not engaged in a United
States trade or business, or otherwise subject to federal income tax as a result
of any direct or indirect connection to the United States other than through its
ownership of a REMIC Regular Certificate. For these purposes, the term "United
States person" means (a) a citizen or resident of the United States, (b) a
corporation, partnership or other entity created or organized in or under the
laws of the United States or any political subdivision thereof, (c) an estate
whose income is includible in gross income for United States federal income
taxation regardless of its source, and (d) a trust for which one or more United
States fiduciaries have the authority to control all substantial decisions and
for which a court of the United States can exercise primary supervision over the
trust's administration. For years beginning before January 1, 1997, the term
"United States person" shall include a trust whose income is includible in gross
income for United States federal income taxation regardless of source, in lieu
of trusts described in (d), above, unless the trust elects to have its United
States status determined under the criteria set forth in (d) above for tax years
ending after August 20, 1996. Proposed Treasury regulations, which would be
effective with respect to payments made after December 31, 1997 if adopted in
their current form, would provide alternative certification requirements and
means by which a holder of REMIC Certificates could claim the exemption from
federal income and withholding tax.
REMIC Residual Certificates. The Conference Report to the Tax Reform
Act of 1986 states that amounts paid to foreign persons with respect to residual
interests should be considered interest for purposes of the withholding rules.
Interest paid to a foreign person which is not effectively connected with a
trade or business of the foreign person in the United States is subject to a 30%
withholding tax. The withholding tax on interest does not apply, however, to
"portfolio interest" (if certain certifications as to beneficial ownership are
made, as discussed above under "Foreign Investors--Regular Certificates") or to
the extent a tax treaty reduces or eliminates the tax. Treasury regulations
provide that amounts paid with respect to residual interests qualify as
portfolio interest only if interest on the qualified mortgages held by the REMIC
qualifies as portfolio interest. Generally, interest on Mortgage Loans held by a
Trust will not qualify as portfolio interest, although interest on the Private
Mortgage-Backed Securities, other pass-through certificates, or REMIC regular
interests held by a Trust may qualify. In any case, a holder of a REMIC Residual
Certificate will not be entitled to the portfolio interest exception from the
30% withholding tax (or to any treaty exemption or rate reduction) for that
portion of a payment that constitutes excess inclusions. Generally, the
withholding tax will be imposed when REMIC gross income is paid or distributed
to the holder of a residual interest or there is a disposition of the residual
interest.
The REMIC Regulations provide that a transfer of a REMIC Residual
Certificate to a foreign transferee will be disregarded for all federal income
tax purposes if the transfer has "tax avoidance potential." A transfer to a
foreign transferee will be considered to have tax avoidance potential unless at
the time of the transfer, the transferor reasonably expects that (1) the future
distributions on the REMIC Residual Certificate will equal at least 30 percent
of the anticipated excess inclusions and (2) such amounts will be distributed at
or after the time at which the excess inclusion accrues, but not later than the
close of the calendar year following the calendar year of accrual. A safe harbor
in the REMIC Regulations provides that the reasonable expectation requirement
will be satisfied if the above test would be met at all assumed prepayment rates
for the Mortgage Assets from 50 percent of the Prepayment Assumption to 200
percent of the Prepayment Assumption. A transfer by a foreign transferor to a
domestic transferee will likewise be disregarded under the REMIC Regulations if
the transfer would have the effect of allowing the foreign transferor to avoid
the tax on accrued excess inclusions.
Gain on Transfers of Certificates. A Certificateholder that is a
nonresident alien or foreign corporation will not be subject to United States
federal income tax on gain realized on the sale, exchange, or redemption of a
REMIC Certificate, provided that (i) such gain is not effectively connected with
a trade or business carried on by the Certificateholder in the United States,
(ii) in the case of a Certificateholder that is an individual, such
Certificateholder is not present in the United States for 183 days or more
during the taxable year in which such sale, exchange or redemption occurs and
(iii) in the case of gain representing accrued interest, the Certificateholder
complies to the extent necessary with certain identification requirements,
including timely delivery of a statement, signed by the Certificateholder under
penalties of perjury, certifying that such Certificateholder is not a United
States person and providing the name and address of such holder.
BACKUP WITHHOLDING
Distributions made on the REMIC Certificates and proceeds from the sale
of REMIC Certificates to or through certain brokers may be subject to a "backup"
withholding tax of 31 percent of "reportable payments" (including interest
accruals, original issue discount, and, under certain circumstances,
distributions in reduction of principal amount) unless, in general, the holder
of the REMIC Certificate complies with certain procedures or is an exempt
recipient. Any amounts so withheld from distributions on the REMIC Certificates
would be refunded by the Internal Revenue Service or allowed as a credit against
the holder's federal income tax.
REMIC ADMINISTRATIVE MATTERS
The federal information returns for a Trust (Form 1066 and Schedules Q
thereto) must be filed as if the Trust were a partnership for federal income tax
purposes. Information on Schedule Q must be provided to holders of REMIC
Residual Certificates with respect to every calendar quarter. Each holder of a
REMIC Residual Certificate will be required to treat items on its federal income
tax returns consistently with their treatment on the Trust's information returns
unless the holder either files a statement identifying the inconsistency or
establishes that the inconsistency resulted from an incorrect schedule received
from the Trust. The Trust also will be subject to the procedural and
administrative rules of the Code applicable to partnerships, including the
determination of any adjustments to, among other things, items of REMIC taxable
income by the Internal Revenue Service. (Treasury regulations exempt from
certain of these procedural rules REMICs having no more than one residual
interest holder.) Holders of REMIC Residual Certificates will have certain
rights and obligations with respect to any administrative or judicial
proceedings involving the Internal Revenue Service. Under the Code and
Regulations, a REMIC generally is required to designate a tax matters person.
Generally, subject to various limitations, the tax matters person has authority
to act on behalf of the REMIC and the holders of the REMIC Residual Certificates
in connection with administrative determinations and judicial review respecting
returns of taxable income of the REMIC.
Unless otherwise indicated in the Prospectus Supplement, and to the
extent allowable, the Representative or its designee will act as the tax matters
person for each REMIC. Each holder of a REMIC Residual Certificate, by the
acceptance of its interest in the REMIC Residual Certificate, agrees that the
Representative or its designee will act as the holder's fiduciary in the
performance of any duties required of the holder in the event that the holder is
the tax matters person.
NON-REMIC CERTIFICATES ISSUED BY A GRANTOR TRUST
The discussion under this heading applies only to a series of
Certificates with respect to which a REMIC election is not made and for which
the Trust is classified as a grantor trust for federal income tax purposes.
Tax Status of the Trust. Upon the issuance of each series of Non-REMIC
Certificates, Federal Tax Counsel, will deliver its opinion to the effect that,
under then current law, assuming compliance with the Agreement, the related
Trust will be classified for federal income tax purposes as a grantor trust and
not as an association taxable as a corporation or a taxable mortgage pool.
Accordingly, each holder of a Non-REMIC Certificate will be treated for federal
income tax purposes as the owner of an undivided interest in the Mortgage Assets
included in the Trust. As further described below, each holder of a Non-REMIC
Certificate therefore must report on its federal income tax return the gross
income from the portion of the Mortgage Assets that is allocable to such
Non-REMIC Certificate and may deduct the portion of the expenses incurred by the
Trust that is allocable to such Non-REMIC Certificate, at the same time and to
the same extent as such items would be reported by such holder if it had
purchased and held directly such interest in the Mortgage Assets and received
directly its share of the payments on the Mortgage Assets and incurred directly
its share of expenses incurred by the Trust when those amounts are received or
incurred by the Trust.
A holder of a Non-REMIC Certificate that is an individual, estate, or
trust will be allowed deductions for such expenses only to the extent that the
sum of those expenses and the holder's other miscellaneous itemized deductions
exceeds two percent of such holder's adjusted gross income. In addition, the
amount of itemized deductions otherwise allowable for the taxable year for an
individual whose adjusted gross income exceeds the "applicable amount" ($100,000
(or $50,000 in the case of a separate return by a married individual), adjusted
for changes in the cost of living subsequent to 1990) will be reduced by the
lesser of (i) 3 percent of the excess of adjusted gross income over the
applicable amount, or (ii) 80 percent of the amount of itemized deductions
otherwise allowable for such taxable year. Moreover, a holder of a Non-REMIC
Certificate that is not a corporation cannot deduct such expenses for purposes
of the alternative minimum tax (if applicable). Such deductions will include
servicing, guarantee and administrative fees paid to the servicer of the
Mortgage Loans. As a result, individuals, estates, or trusts holding Non-REMIC
Certificates may have taxable income in excess of the cash received.
Status of the Non-REMIC Certificates. The Non-REMIC Certificates
generally will be "real estate assets" for purposes of Section 856(c)(5)(A) of
the Code and "loans . . . secured by an interest in real property" within the
meaning of Section 7701(a)(19)(C)(v) of the Code, and interest income on the
Non-REMIC Certificates generally will be "interest on obligations secured by
mortgages on real property" within the meaning of Section 856(c)(3)(B) of the
Code. However, the Non-REMIC Certificates may not be qualifying assets under any
of the foregoing sections of the Code to the extent that the Trust's assets
include Buydown Funds, amounts in a Reserve Account, or payments on mortgages
held pending distribution to Certificateholders. Further, the Non-REMIC
Certificates may not be "real estate assets" to the extent loans held by the
trust are not secured by real property, and may not be "loans . . . secured by
an interest in real property" to the extent loans held by the trust are not
secured by residential real property or real property used primarily for church
purposes. In addition, to the extent that the principal amount of a loan exceeds
the value of the property securing the loan, it is unclear and Federal Tax
Counsel is unable to opine whether the loan will be a qualifying asset. The
Non-REMIC Certificates should not be "residential loans made by the taxpayer"
for purposes of the residential loan requirement of Section 593(g)(4)(B) of the
Code.
Taxation of Non-REMIC Certificates Under Stripped Bond Rules. The
federal income tax treatment of the Non-REMIC Certificates will depend on
whether they are subject to the rules of section 1286 of the Code (the "stripped
bond rules"). The Non-REMIC Certificates will be subject to those rules if
stripped interest-only Certificates are issued. In addition, whether or not
stripped interest-only Certificates are issued, the Internal Revenue Service may
contend that the stripped bond rules apply on the ground that the Servicer's
servicing fee, or other amounts, if any, paid to (or retained by) the Servicer
or its affiliates, as specified in the applicable Prospectus Supplement,
represent greater than an arm's length consideration for servicing the Mortgage
Loans and should be characterized for federal income tax purposes as an
ownership interest in the Mortgage Loans. The Internal Revenue Service has taken
the position in Revenue Ruling 91-46 that retained interest in excess of
reasonable compensation for servicing is treated as a "stripped coupon" under
the rules of Code Section 1286.
If interest retained for the Servicer's servicing fee or other interest
is treated as a "stripped coupon," the Non-REMIC Certificates will either be
subject to the original issue discount rules or the market discount rules. A
holder of a Non-REMIC Certificate will account for any discount on the Non-REMIC
Certificate (other than an interest treated as a "stripped coupon") as market
discount rather than original issue discount if either (i) the amount of
original issue discount with respect to the Non-REMIC Certificate was treated as
zero under the original issue discount de minimis rule when the Non-REMIC
Certificate was stripped or (ii) no more than 100 basis points (including any
amount of servicing in excess of reasonable servicing) is stripped off from the
Mortgage Loans. If neither of the above exceptions applies, the original issue
discount rules will apply to the Non-REMIC Certificates.
If the original issue discount rules apply, the holder of a Non-REMIC
Certificate (whether a cash or accrual method taxpayer) will be required to
report interest income from the Non-REMIC Certificate in each taxable year equal
to the income that accrues on the Non-REMIC Certificate in that year calculated
under a constant yield method based on the yield of the Non-REMIC Certificate
(or, possibly, the yield of each Mortgage Asset underlying such Non-REMIC
Certificate) to such holder. Such yield would be computed at the rate that, if
used in discounting the holder's share of the payments on the Mortgage Assets,
would cause the present value of those payments to equal the price at which the
holder purchased the Non-REMIC Certificate. With respect to certain categories
of debt instruments, Section 1272(a)(6) of the Code requires that original issue
discount be accrued based on a prepayment assumption determined in a manner
prescribed by forthcoming regulations. It is unclear whether such regulations
would apply this rule to the Non-REMIC Certificates, whether Section 1272(a)(6)
might apply to the Non-REMIC Certificates in the absence of such regulations, or
whether the Internal Revenue Service could require use of a reasonable
prepayment assumption based on other tax law principles and Federal Tax Counsel
is unable to opine with respect to these issues. If required to report interest
income on the Non-REMIC Certificates to the Internal Revenue Service under the
stripped bond rules, it is anticipated that the Trustee will calculate the yield
of the Non-REMIC Certificates based on a representative initial offering price
of the Non-REMIC Certificates and a reasonable assumed rate of prepayment of the
Mortgage Assets (although such yield may differ from the yield to any particular
holder that would be used in calculating the interest income of such holder).
The Prospectus Supplement for each series of Non-REMIC Certificates will
describe the prepayment assumption that will be used for this purpose, but no
representation is made that the Mortgage Assets will prepay at that rate or at
any other rate.
In the case of a Non-REMIC Certificate acquired at a price equal to
the principal amount of the Mortgage Assets allocable to the Non-REMIC
Certificate, the use of a reasonable prepayment assumption would not have any
significant effect on the yield used in calculating accruals of interest income.
In the case, however, of a Non-REMIC Certificate acquired at a discount or
premium (that is, at a price less than or greater than such principal amount,
respectively), the use of a reasonable prepayment assumption would increase or
decrease such yield, and thus accelerate or decelerate the reporting of interest
income, respectively.
If a Mortgage Loan is prepaid in full, the holder of a Non-REMIC
Certificate acquired at a discount or premium generally will recognize ordinary
income or loss equal to the difference between the portion of the prepaid
principal amount of the Mortgage Loan that is allocable to the Non-REMIC
Certificate and the portion of the adjusted basis of the Non-REMIC Certificate
(see "Sales of Non-REMIC Certificates" below) that is allocable to the Mortgage
Loan. The method of allocating such basis among the Mortgage Loans may differ
depending on whether a reasonable prepayment assumption is used in calculating
the yield of the Non-REMIC Certificates for purposes of accruing original issue
discount. It is not clear whether any other adjustments would be required to
reflect differences between the prepayment rate that was assumed in calculating
yield and the actual rate of prepayments.
Non-REMIC Certificates of certain series ("Variable Rate Non-REMIC
Certificates") may provide for a Pass-Through Rate based on the weighted average
of the interest rates of the Mortgage Assets held by the Trust, which interest
rates may be fixed or variable. In the case of a Variable Rate Non-REMIC
Certificate that is subject to the original issue discount rules, the daily
portions of original issue discount generally will be calculated under the
principles discussed in "REMIC Regular Certificates-Current Income on REMIC
Regular Certificates--Original Issue Discount--Variable Rate REMIC Regular
Certificates."
Taxation of Non-REMIC Certificates If Stripped Bond Rules Do Not Apply.
If the stripped bond rules do not apply to a Non-REMIC Certificate, then the
holder will be required to include in income its share of the interest payments
on the Mortgage Assets in accordance with its tax accounting method. In
addition, if the holder purchased the Non-REMIC Certificate at a discount or
premium, the holder will be required to account for such discount or premium in
the manner described below. The treatment of any discount will depend on whether
the discount is original issue discount as defined in the Code and, in the case
of discount other than original issue discount, whether such other discount
exceeds a de minimis amount. In the case of original issue discount, the holder
(whether a cash or accrual method taxpayer) will be required to report as
additional interest income in each month the portion of such discount that
accrues in that month, calculated based on a constant yield method. In general
it is not anticipated that the amount of original issue discount to be accrued
in each month, if any, will be significant relative to the interest paid
currently on the Mortgage Assets. However, original issue discount could arise
with respect to a Mortgage Loan ("ARM") that provides for interest at a rate
equal to the sum of an index of market interest rates and a fixed number. The
original issue discount for ARMs generally will be determined under the
principles discussed in "REMIC Regular Certificates-Current Income on REMIC
Regular Certificates--Original Issue Discount---Variable Rate REMIC Regular
Certificates."
If discount other than original issue discount exceeds a de minimis
amount (described below), the holder will also generally be required to include
in income in each month the amount of such discount accrued through such month
and not previously included in income, but limited, with respect to the portion
of such discount allocable to any Mortgage Asset, to the amount of principal on
such Mortgage Asset received by the Trust in that month. Because the Mortgage
Assets will provide for monthly principal payments, such discount may be
required to be included in income at a rate that is not significantly slower
than the rate at which such discount accrues (and therefore at a rate not
significantly slower than the rate at which such discount would be included in
income if it were original issue discount). The holder may elect to accrue such
discount under a constant yield method based on the yield of the
Non-REMIC Certificate to such holder. In the absence of such an election, it may
be necessary to accrue such discount under a more rapid straight-line method.
Under the de minimis rule, market discount with respect to a Non-REMIC
Certificate will be considered to be zero if it is less than the product of (i)
0.25% of the principal amount of the Mortgage Assets allocable to the Non-REMIC
Certificate and (ii) the weighted average life (in complete years) of the
Mortgage Assets remaining at the time of purchase of the Non-REMIC Certificate.
If a holder purchases a Non-REMIC Certificate at a premium, such
holder may elect under Section 171 of the Code to amortize the portion of such
premium that is allocable to a Mortgage Loan under a constant yield method based
on the yield of the Mortgage Loan to such holder, provided that such Mortgage
Loan was originated after September 27, 1985. Premium allocable to a Mortgage
Loan originated on or before that date should be allocated among the principal
payments on the Mortgage Loan and allowed as an ordinary deduction as principal
payments are made or, perhaps, upon termination.
It is not clear whether the foregoing adjustments for discount or
premium would be made based on the scheduled payments on the Mortgage Loans or
taking account of a reasonable prepayment assumption, and Federal Tax Counsel is
unable to opine on this issue.
If a Mortgage Loan is prepaid in full, the holder of a Non-REMIC
Certificate acquired at a discount or premium will recognize ordinary income or
loss equal to the difference between the portion of the prepaid principal amount
of the Mortgage Loan that is allocable to the Non-REMIC Certificate and the
portion of the adjusted basis of the Non-REMIC Certificate (see "Sales of
Non-REMIC Certificates" below) that is allocable to the Mortgage Loan. The
method of allocating such basis among the Mortgage Loans may differ depending on
whether a reasonable prepayment assumption is used in calculating the yield of
the Non-REMIC Certificates for purposes of accruing original issue discount.
Other adjustments might be required to reflect differences between the
prepayment rate that was assumed in accounting for discount or premium and the
actual rate of prepayments.
Sales of Non-REMIC Certificates. A holder that sells a Non-REMIC
Certificate will recognize gain or loss equal to the difference between the
amount realized in the sale and its adjusted basis in the Non-REMIC Certificate.
In general, such adjusted basis will equal the holder's cost for the Non-REMIC
Certificate, increased by the amount of any income previously reported with
respect to the Non-REMIC Certificate and decreased by the amount of any losses
previously reported with respect to the Non-REMIC Certificate and the amount of
any distributions received thereon. Any such gain or loss generally will be
capital gain or loss if the assets underlying the Non-REMIC Certificate were
held as capital assets, except that, for a Non-REMIC Certificate to which the
stripped bond rules do not apply and that was acquired with more than a de
minimis amount of discount other than original issue discount (see "Taxation of
Non-REMIC Certificates if Stripped Bond Rules Do Not Apply" above), such gain
will be treated as ordinary interest income to the extent of the portion of such
discount that accrued during the period in which the seller held the Non-REMIC
Certificate and that was not previously included in income.
Foreign Investors. A holder of a Non-REMIC Certificate who is not a
"United States person" (as defined below) and is not subject to federal income
tax as a result of any direct or indirect connection to the United States other
than its ownership of a Non-REMIC Certificate generally will not be subject to
United States income or withholding tax in respect of payments of interest or
original issue discount on a Non-REMIC Certificate to the extent attributable to
Mortgage Loans that were originated after July 18, 1984, provided that the
holder complies to the extent necessary with certain identification requirements
(including delivery of a statement, signed by the holder of the Non-REMIC
Certificate under penalties of perjury, certifying that such holder is not a
United States person and providing the name and address of such holder).
Proposed Treasury Regulations, which would be effective with respect to payments
made after December 31, 1997 if adopted in their current form, would provide
alternative certification requirements and means by which a holder of Non-REMIC
Certificates could claim an exemption from federal income and withholding tax.
Interest or original issue discount on a Non-REMIC Certificate attributable to
Mortgage Loans that were originated prior to July 19, 1984 will be subject to a
30% withholding tax (unless such tax is reduced or eliminated by an applicable
tax treaty). For these purposes, the term "United States person" means a citizen
or a resident of the United States, a corporation, partnership or other entity
created or organized in, or under the laws of, the United States or any
political subdivision thereof, an estate the income of which is subject to
United States federal income taxation regardless of its source, and a trust for
which one or more United States fiduciaries have the authority to control all
substantial decisions and for which a court of the United States can exercise
primary supervision over the trust's administration. For years beginning before
January 1, 1997, the term "United States person" shall include a trust whose
income is includible in gross income for United States federal income taxation
regardless of source, in lieu of trusts just described, unless the trust elects
to have its United States status determined under the criteria described in the
previous sentence for tax years ending after August 20, 1996.
TAXABLE MORTGAGE POOLS
Effective January 1, 1992, certain entities classified as "taxable
mortgage pools" are subject to corporate level tax on their net income. A
"taxable mortgage pool" is generally defined as an entity that meets the
following requirements: (i) the entity is not a REMIC (or, after September 1,
1997, a FASIT) (ii) substantially all of the assets of the entity are debt
obligations, and more than 50 percent of such debt obligations consist of real
estate mortgages (or interests therein), (iii) the entity is the obligor under
debt obligations with two or more maturities, and (iv) payments on the debt
obligations on which the entity is the obligor bear a relationship to the
payments on the debt obligations which the entity holds as assets. With respect
to requirement (iii), the Code authorizes the Internal Revenue Service to
provide by regulations that equity interests may be treated as debt for purposes
of determining whether there are two or more maturities. If a Series of
Non-REMIC Certificates were treated as obligations of a taxable mortgage pool,
the Trust would be ineligible to file consolidated returns with any other
corporation and could be liable for corporate tax. Treasury regulations do not
provide for the recharacterization of equity as debt for purposes of determining
whether an entity has issued debt with two maturities, except in the case of
transactions structured to avoid the taxable mortgage pool rules.
NON-REMIC CERTIFICATES AND NOTES OF A TRUST INTENDED TO BE
CHARACTERIZED AS A PARTNERSHIP
The discussion under this heading applies only to a series of
Certificates and Notes with respect to which a REMIC election is not made and
for which the Trust is intended to be classified as a partnership for federal
income tax purposes.
Federal Tax Counsel will deliver its opinion for a Trust which is
intended to be a partnership for federal income tax purposes, as specified in
the related Prospectus Supplement, generally to the effect that the Trust will
not be an association (or publicly traded partnership) taxable as a corporation
for federal income tax purposes. This opinion will be based on the assumption
that the terms of the Agreements and related documents will be complied with,
such that an election has not been and will not be made to treat the Trust as an
association taxable as a corporation, and on counsel's conclusion that the
nature of the income of the Trust will exempt it from the rule that certain
publicly traded partnerships are taxable as corporations or such rule is
otherwise inapplicable to the Trust, so that the Trust will not be characterized
as a publicly traded partnership taxable as a corporation.
Certain entities classified as "taxable mortgage pools" are subject to
corporate level tax on their net income. A "taxable mortgage pool" is generally
defined as an entity that meets the following requirements: (i) the entity is
not a REMIC (or, after September 1, 1997, a FASIT), (ii) substantially all of
the assets of the entity are debt obligations, and more than 50 percent of such
debt obligations consists of real estate mortgages (or interests therein), (iii)
the entity is the obligor under debt obligations with two or more maturities,
and (iv) payments on the debt obligations on which the entity is the obligor
bear a relationship to the payments on the debt obligations which the entity
holds as assets. With respect to requirement (iii), the Code authorizes the
Internal Revenue Service to provide by regulations that equity interests may be
treated as debt for purposes of determining whether there are two or more
maturities. If the Trust were treated as a taxable mortgage pool, it would be
ineligible to file consolidated returns with any other corporation and could be
liable for corporate tax. Treasury regulations do not provide for the
recharacterization of equity as debt for purposes of determining whether an
entity has issued debt with two maturities, except in the case of transactions
structured to avoid the taxable mortgage pool rules. Federal Tax Counsel will
deliver its opinion for a Trust which is intended to be a partnership for
federal income tax purposes, as specified in the related Prospectus Supplement,
generally to the effect that the Trust will not be a taxable mortgage pool. This
opinion will be based on the assumption that the terms of the Agreements and
related documents will be complied with, and on counsel's conclusion that either
the number of classes of debt obligations issued be the Trust, or the nature of
the assets held by the Trust, will exempt the Trust from treatment as a taxable
mortgage pool.
If the Trust were taxable as a corporation for federal income tax
purposes, the Trust would be subject to corporate income tax on its taxable
income. The Trust's taxable income would include all its income, possibly
reduced by its interest expense on the Notes. Any such corporate income tax
could materially reduce cash available to make payments on the Notes and
distributions on the Certificates, and Certificateholders could be liable for
any such tax that is unpaid by the Trust. In additions, all distributions to the
Certificateholders would be taxable as dividends.
TAX CONSEQUENCES TO HOLDERS OF THE NOTES ISSUED BY A PARTNERSHIP
Treatment Of The Notes As Indebtedness. The Trust will agree, and the
Noteholders will agree by their purchase of Notes, to treat the Notes as debt
for federal income tax purposes. Except as otherwise provided in the related
Prospectus Supplement, Federal Tax Counsel will advise the Representative that
in its opinion the Notes will be classified as debt for federal income tax
purposes.
Possible Alternative Treatments Of The Notes. If, contrary to the
opinion of counsel, the IRS successfully asserted that one or more of the Notes
did not represent debt for federal income tax purposes, the Notes might be
treated as equity interests in the Trust. If so treated, the Trust might be
taxable as a corporation with the adverse consequences described above (and the
taxable corporation would not be able to reduce its taxable income by deductions
for interest expense on Notes recharacterized as equity). Alternatively, the
Trust might be treated as a publicly traded partnership that would not be
taxable as a corporation because it would meet certain qualifying income tests.
Nonetheless, treatment of the Notes as equity interests in such a publicly
traded partnership could have adverse tax consequences to certain holders. For
example, income to foreign holders generally would be subject to United States
federal income tax and United States federal income tax return filing and
withholding requirements, and individual holders might be subject to certain
limitations on their ability to deduct their share of the Trust's expenses.
Interest Income On The Notes. The stated interest on the Notes will be
taxable to a Noteholder as ordinary income when received or accrued in
accordance with such Noteholder's method of tax accounting. It is not
anticipated that the Notes will be issued with original issue discount within
the meaning of Section 1273 of the Code. A subsequent holder who purchases a
Note at a discount that exceeds a statutorily defined de minimis amount will be
subject to the "market discount" rules of the Code, and a holder who purchases a
Note at a premium will be subject to the premium amortization rules of the Code.
Sale Or Other Disposition. If a Noteholder sells a Note, the holder
will recognize gain or loss in an amount equal to the difference between the
amount realized on the sale and the holder's adjusted tax basis in the Note. The
adjusted tax basis of a Note to a particular Noteholder will equal the holder's
cost for the Note, increased by any original issue discount (if any), market
discount and gain previously included by such Noteholder in income with respect
to the Note and decreased by the amount of bond premium (if any) previously
amortized and by the amount of principal payments previously received by such
Noteholder with respect to such Note. Subject to the rules of the Code
concerning market discount on the Notes, any such gain or loss generally will be
capital gain or loss if the Note was held as a capital asset. Capital losses
generally may be deducted only to the extent the Noteholder has capital gains
for the taxable year, although under certain circumstances non-corporate
Noteholders can deduct losses in excess of available capital gains.
Foreign Holders. If interest paid (or accrued) to a Noteholder who is
a nonresident alien, foreign corporation or other non-United States person (a
"foreign person") is not effectively connected with the conduct of a trade or
business within the United States by the foreign person, the interest generally
will be considered "portfolio interest," and generally will not be subject to
United States Federal income tax and withholding tax, if the foreign person (i)
is not actually or constructively a "10 percent shareholder" of the Trust or the
Representative (including a holder of 10% of the outstanding Certificates) or a
"controlled foreign corporation" with respect to which the Trust or the
Representative is a "related person" within the meaning of the Code and (ii)
provides the person otherwise required to withhold United States tax with an
appropriate statement, signed under penalties of perjury, certifying that the
beneficial owner of the Note is a foreign person and providing the foreign
person's name and address. If the information provided in the statement changes,
the foreign person must so inform the person otherwise required to withhold
United States tax within 30 days of such change. The statement generally must be
provided in the year a payment occurs (prior to such payment) or in either of
the two preceding years. If a Note is held through a securities clearing
organization or certain other financial institutions, the organization or
institution may provide a signed statement to the withholding agent. However, in
that case, the signed statement must be accompanies by a Form W-8 or substitute
form provided by the foreign person that owns the Note. If such interest in not
portfolio interest, then it will be subject to United States federal income and
withholding tax at a rate of 30%, unless reduced or eliminated pursuant to an
applicable tax treaty.
Any capital gain realized on the sale, redemption, retirement or other
taxable disposition of a Note by a foreign person will be exempt from United
States federal income and withholding tax, provided that (i) the gain is not
effectively connected with the conduct of a trade or business in the United
States by the foreign person and (ii) in the case of an individual foreign
person, the foreign individual is not present in the United States for 183 days
or more in the taxable year.
If the interest, gain or income on a Note held by a foreign person is
effectively connected with the conduct of a trade or business in the United
States by the foreign person (although exempt from the withholding tax
previously discussed if the holder provides an appropriate statement), the
holder generally will be subject to United States federal income tax on the
interest, gain or income at regular federal income tax rates. In addition, if
the foreign person is a foreign corporation, it may be subject to a branch
profits tax equal to 30% of its "effectively connected earnings and profits"
within the meaning of the Code for the taxable year, as adjusted for certain
items, unless it qualifies for a lower rate under an applicable tax treaty (as
modified by the branch profits tax rules).
Proposed Treasury regulations, which would be effective with respect to
payments made after December 31, 1997 if adopted in their current form, would
provide alternative certification requirements and means for obtaining the
exemption from federal income and withholding tax.
Information Reporting And Backup Withholding. The Trust will be
required to report annually to the IRS, and to each Noteholder of record, the
amount of interest paid on the Notes (and the amount of interest withheld for
federal income taxes, if any) for each calendar year, except as to exempt
holders (generally, holders that are corporations, tax-exempt organizations,
qualified pension and profit-sharing trusts, individual retirement accounts, or
nonresident aliens who provide certification as to their status as
nonresidents). Accordingly, each holder (other than exempt holders who are not
subject to the reporting requirements) will be required to provide, under
penalties of perjury, a certificate containing the holder's name, address,
correct federal taxpayer identification number and a statement that the holder
is not subject to backup withholding. Should a nonexempt Noteholder fail to
provide the required certification, the Trust will be required to withhold 31%
of the amount otherwise payable to the holder, and remit the withheld amount to
the IRS, as a credit against the holder's federal income tax liability.
TAX CONSEQUENCES TO HOLDERS OF CERTIFICATES ISSUED BY A PARTNERSHIP
Treatment Of The Issuer As A Partnership. In the case of a Trust
intended to qualify as a partnership for federal income tax purposes, the Trust
and the Representative will agree, and the Certificateholders will agree by
their purchase of Certificates, to treat the Trust as a partnership for purposes
of United States federal and state income tax, franchise tax and any other tax
measured in whole or in part by income, with the assets of the partnership being
the assets held by the Trust, the partners of the partnership being the
Certificateholders, and the Notes, if any, being debt of the partnership.
However, the proper characterization of the arrangement involving the Trust, the
Certificates, the Notes, and the Master Servicer is not clear because there is
no authority on transactions closely comparable to that contemplated herein.
A variety of alternative characterizations are possible. For example,
because the Certificates have certain features characteristic of debt, the
Certificates might be considered debt of the Trust. Generally, provided the
Certificates are issued at or close to face value, any such characterization
should not result in materially adverse tax consequences to Certificateholders
as compared to the consequences from treatment of the Certificates as equity in
a partnership, described below. The following discussion assumes that the
Certificates represent equity interests in a partnership.
Partnership Taxation. As a partnership, the Trust will not be subject
to federal income tax. Rather, each Certificateholder will be required to
separately take into account such holder's allocated share of income, gains,
losses, deductions and credits of the Trust. The Trust's income will consist
primarily of interest and finance charges earned on the Mortgage Loans
(including appropriate adjustments for market discount, original issue discount
and bond premium) and any gain upon collection or disposition of Mortgage Loans.
The Trust's deductions will consist primarily of interest and original issue
discount accruing with respect to the Notes, servicing and other fees, and
losses or deductions upon collection or disposition of Mortgage Loans.
The tax items of a partnership are allocable to the partners in
accordance with the Code, Treasury regulations and the partnership agreement
(here, the Trust Agreement and related documents). The Trust Agreement will
provide, in general, that the Certificateholders will be allocated taxable
income of the Trust for each month equal to the sum of (i) the interest that
accrues on the Certificates in accordance with their terms for such month,
including interest accruing at the Pass-Through Rate for such month and interest
on amounts previously due on the Certificates but not yet distributed; (ii) any
Trust income attributable to discount on the Mortgage Loans that corresponds to
any excess of the principal amount of the Certificates over their initial issue
price; (iii) prepayment premium payable to the Certificateholders for such
month; and (iv) any other amounts of income payable to the Certificateholders
for such month. Such allocation will be reduced by any amortization by the Trust
of premium on Mortgage Loans that corresponds to any excess of the issue price
of Certificates over their principal amount. All remaining taxable income of the
Trust will be allocated to the Representative. Based on the economic arrangement
of the parties, this approach for allocating Trust income should be permissible
under applicable Treasury regulations, although no assurance can be given that
the IRS would not require a greater amount of income to be allocated to
Certificateholders. Moreover, even under the foregoing method of allocation,
Certificateholders may be allocated income equal to the entire Pass-Through Rate
plus the other items described above even though the Trust might not have
sufficient cash to make current cash distributions of such amount. Thus, cash
basis holders will in effect be required to report income from the Certificates
on the accrual basis and Certificateholders may become liable for taxes on Trust
income even if they have not received cash from the Trust to pay such taxes. In
addition, because tax allocations and tax reporting will be done on a uniform
basis for all Certificateholders but Certificateholders may be purchasing
Certificates at different times and at different prices, Certificateholders may
be required to report on their tax returns taxable income that is greater or
less than the amount reported to them by the Trust.
If Notes are also issued, some or all of the taxable income allocated
to a Certificateholder that is a pension, profit sharing or employee benefit
plan or other tax-exempt entity (including an individual retirement account)
will constitute "unrelated business taxable income" generally taxable to such a
holder under the Code.
An individual taxpayer's share of expenses of the Trust (including fees
to the Servicer but not interest expense) would be miscellaneous itemized
deductions. Such deductions might be disallowed to the individual in whole or in
part and might result in such holder being taxed on an amount of income that
exceeds the amount of cash actually distributed to such holder over the life of
the Trust.
The Trust intends to make all tax calculations relating to income and
allocations to Certificateholders on an aggregate basis. If the IRS were to
require that such calculations be made separately for each Mortgage Loan, the
Trust might be required to incur additional expense but it is believed that
there would not be a material adverse effect on Certificateholders.
Discount And Premium. It is believed that the Mortgage Loans were not
issued with original issue discount and, therefore, the Trust should not have
original issue discount income. However, the purchase price paid by the Trust
for the Mortgage Loans may be greater or less than the remaining principal
balance of the Mortgage Loans at the time of purchase. If so, the Mortgage Loan
will have been acquired at a premium or discount, as the case may be. (As
indicated above, the Trust will make this calculation on an aggregate basis, but
might be required to recompute it on a Mortgage Loan by Mortgage Loan basis.)
If the Trust acquires the Mortgage Loans at a market discount or
premium, the Trust will elect to include any such discount in income currently
as it accrues over the life of the Mortgage Loans or to offset any such premium
against interest income on the Mortgage Loans. As indicated above, a portion of
such market discount income or premium deduction may be allocated to
Certificateholders.
Section 708 Termination. Under Section 708 of the Code, the Trust will
be deemed to terminate for federal income tax purposes if 50% or more of the
capital and profits interests in the Trust are sold or exchanged within a
12-month period. If such a termination occurs, the partnership will be
considered to transfer its assets and liabilities to a new partnership in
exchange for interests in that new partnership, which it would then be treated
as transferring to its partners. The Trust will not comply with certain
technical requirements that might apply when such a constructive termination
occurs. As a result, the Trust may be subject to certain tax penalties and may
incur additional expenses if it is required to comply with those requirements.
Furthermore, the Trust might not be able to comply due to lack of data.
Disposition Of Certificates. Generally, capital gain or loss will be
recognized on a sale of Certificates in an amount equal to the difference
between the amount realized and the seller's tax basis in the Certificates sold.
A Certificateholder's tax basis in a Certificate will generally equal the
holder's cost increased by the holder's share of Trust income (includible in
income) and decreased by any distributions received with respect to such
Certificate. In addition, both the tax basis in the Certificates and the amount
realized on a sale of a Certificate would include the holder's share of the
Notes and other liabilities of the Trust. A holder acquiring Certificates at
different prices may be required to maintain a single aggregate adjusted tax
basis in such Certificates, and, upon sale or other disposition of some of the
Certificates, allocate a portion of such aggregate tax basis to the Certificates
sold (rather than maintaining a separate tax basis in each Certificate for
purposes of computing gain or loss on a sale of that Certificate).
Any gain on the sale of a Certificate attributable to the holder's
share of unrecognized accrued market discount on the Mortgage Loans would
generally be treated as ordinary income to the holder and would give rise to
special tax reporting requirements. The Trust does not expect to have any other
assets that would give rise to such special reporting requirements. Thus, to
avoid those special reporting requirements, the Trust will elect to include
market discount in income as it accrues.
If a Certificateholder is required to recognize an aggregate amount of
income (not including income attributable to disallowed itemized deductions
described above) over the life of the Certificates that exceeds the aggregate
cash distributions with respect thereto, such excess will generally give rise to
a capital loss upon the retirement of the Certificates.
Allocations Between Representative And Transferees. In general, the
Trust's taxable income and losses will be determined monthly and the tax items
for a particular calendar month will be apportioned among the Certificateholders
in proportion to the principal amount of Certificates owned by them as of the
close of the last day of such month. As a result, a holder purchasing
Certificates may be allocated tax items (which will affect its tax liability and
tax basis) attributable to periods before the actual transaction.
The use of such a monthly convention may not be permitted by existing
regulations and federal tax counsel is unable to opine on the matter. If a
monthly convention is not allowed (or only applies to transfers of less than all
of the partner's interest), taxable income or losses of the Trust might be
reallocated among the Certificateholders. The Trust's method of allocation
between transferors and transferees may be revised to conform to a method
permitted by future regulations.
Section 754 Election. In the event that a Certificateholder sells its
Certificates at a profit (loss), the purchasing Certificateholder will have a
higher (lower) basis in the Certificates than the selling Certificateholder had.
The tax basis of the Trust's assets will not be adjusted to reflect that higher
(or lower) basis unless the Trust were to file an election under Section 754 of
the Code. In order to avoid the administrative complexities that would be
involved in keeping accurate accounting records, as well as potentially onerous
information reporting requirements, the Trust currently does not intend to make
such election. As a result, Certificateholders might be allocated a greater or
lesser amount of Trust income than would be appropriate based on their own
purchase price for Certificates.
Administrative Matters. The Trustee is required to keep or have kept
complete and accurate books of the Trust. Such books will be maintained for
financial reporting and tax purposes on an accrual basis and the fiscal year of
the Trust will be the calendar year. The Trustee will file a partnership
information return (IRS Form 1065) with the IRS for each taxable year of the
Trust and will report each Certificateholder's allocable share of items of Trust
income and expense to holders and the IRS on Schedule K-1. The Trust will
provide the Schedule K-1 information to nominees that fail to provide the Trust
with the information statement described below and such nominees will be
required to forward such information to the beneficial owners of the
Certificates. Generally, holders must file tax returns that are consistent with
the information return filed by the Trust or be subject to penalties unless the
holder notifies the IRS of all such inconsistencies.
Under Section 6031 of the Code, any person that holds Certificates as a
nominee at any time during a calendar year is required to furnish the Trust with
a statement containing certain information on the nominee, the beneficial owners
and the Certificates so held. Such information includes (i) the name, address
and taxpayer identification number of the nominee and (ii) as to each beneficial
owner (x) the name, address and identification number of such person, (y)
whether such person is a United States person, a tax-exempt entity or a foreign
government, an international organization, or any wholly owned agency or
instrumentality of either of the foregoing, and (z) certain information on
Certificates that were held, bought or sold on behalf of such person throughout
the year. In addition, brokers and financial institutions that hold Certificates
through a nominee are required to furnish directly to the Trust information as
to themselves and their ownership of Certificates. A clearing agency registered
under Section 17A of the Exchange Act is not required to furnish any such
information statement to the Trust. The information referred to above for any
calendar year must be furnished to the Trust on or before the following January
31. Nominees, brokers and financial institutions that fail to provide the Trust
with the information described above may be subject to penalties.
The Representative will be designated as the tax matters partner in the
related Trust Agreement and, as such, will be responsible for representing the
Certificateholders in any dispute with the IRS. The Code provides for
administrative examination of a partnership as if the partnership were a
separate and distinct taxpayer. Generally, the statute of limitations for
partnership items does not expire before three years after the date on which the
partnership information return is filed. Any adverse determination following an
audit of the return of the Trust by the appropriate taxing authorities could
result in an adjustment of the returns of the Certificateholders, and, under
certain circumstances, a Certificateholder may be precluded from separately
litigating a proposed adjustment to the items of the Trust. An adjustment could
also result in an audit of a Certificateholder's returns and adjustments of
items not related to the income and losses of the Trust.
Tax Consequences To Foreign Certificateholders. It is not clear and
federal tax counsel is unable to opine whether the Trust would be considered to
be engaged in a trade or business in the United States for purposes of federal
withholding taxes with respect to non-United States persons because there is no
clear authority dealing with that issue under facts substantially similar to
those described herein. Although it is not expected that the Trust would be
engaged in a trade or business in the United States for such purposes, the Trust
will withhold as if it were so engaged in order to protect the Trust from
possible adverse consequences of a failure to withhold. The Trust expects to
withhold on the portion of its taxable income that is allocable to foreign
Certificateholders pursuant to Section 1446 of the Code, as if such income were
effectively connected to a United States trade or business, at a rate of 35% for
foreign holders that are taxable as corporations and 39.6% for all other foreign
holders. Subsequent adoption of Treasury regulations or the issuance of other
administrative pronouncements may require the Trust to change its withholding
procedures.
If the trust is engaged in a United States trade or business, each
foreign holder might be required to file a United States individual or corporate
income tax return (including, in the case of a corporation, the branch profits
tax) on its share of the Trust's income. A foreign holder generally would be
entitled to file with the IRS a claim for refund with respect to taxes withheld
by the Trust taking the position that no taxes were due because the Trust was
not engaged in a United States trade or business. However, interest payments
made (or accrued) to a Certificateholder who is a foreign person generally will
be considered guaranteed payments to the extent such payments are determined
without regard to the income of the Trust, and for that reason or because of the
nature of the assets of the Trust probably will not be considered "portfolio
interest." As a result, even if the Trust was not considered to be engaged in a
United States trade or business, Certificateholders will be subject to United
States federal income tax which must be withheld at a rate of 30%, unless
reduced or eliminated pursuant to an applicable treaty. A foreign holder would
be entitled to claim a refund for such withheld tax, taking the position that
the interest was portfolio interest and therefore not subject to United States
tax. However, the IRS may disagree and no assurance can be given as to the
appropriate amount of tax liability. As a result, each potential foreign
Certificateholder should consult its tax advisor as to whether an interest in a
Certificate is an unsuitable investment.
Backup Withholding. Distributions made on the Certificates and proceeds
from the sale of the Certificates will be subject to a "backup" withholding tax
of 31% if, in general, the Certificateholder fails to comply with certain
identification procedures, unless the holder is an exempt recipient under
applicable provisions of the Code.
ERISA CONSIDERATIONS
ERISA imposes certain requirements on employee benefit plans and
collective investment funds, separate accounts and insurance company general
accounts in which such plans or arrangements are invested to which it applies
and on those persons who are fiduciaries with respect to such benefit plans.
Certain employee benefit plans, such as governmental plans (as defined in
Section 3(32) of ERISA) and certain church plans (as defined in Section 3(33) of
ERISA), are not subject to ERISA. In accordance with ERISA's general fiduciary
standards, before investing in a Security a benefit plan fiduciary should
determine whether such an investment is permitted under the governing benefit
plan instruments and is appropriate for the benefit plan in view of its overall
investment policy and the composition and diversification of its portfolio and
is prudent.
In addition, benefit plans subject to ERISA and individual retirement
accounts or certain types of Keogh plans not subject to ERISA but subject to
Section 4975 of the Code (each a "Plan") are prohibited from engaging in a broad
range of transactions involving Plan assets and persons having certain specified
relationships to a Plan ("parties in interest" and "disqualified persons"). Such
transactions are treated as "prohibited transactions" under Sections 406 and 407
of ERISA and excise taxes are imposed upon such persons by Section 4975 of the
Code. The Representative, the Originators, the Security Guaranty Insurer, the
Underwriter and the Trustee and certain of their affiliates might be considered
"parties in interest" or "disqualified persons" with respect to a Plan. If so,
the acquisition or holding or transfer of Securities by or on behalf of such
Plan could be considered to give rise to a "prohibited transaction" within the
meaning of ERISA and the Code unless an exemption is available. In addition, the
U.S. Department of Labor ("DOL") has issued a regulation (29 C.F.R. Section
2510.3-101) concerning the definition of what constitutes the assets of a Plan
(the "Plan Asset Regulations"), which provides that, as a general rule, the
underlying assets and properties of corporations, partnerships, trusts and
certain other entities in which a Plan makes an "equity" investment will be
deemed for purposes of ERISA to be assets of the investing Plan unless certain
exceptions apply. If an investing Plan's assets were deemed to include an
interest in the Mortgage Loans and any other assets of the Trust and not merely
an interest in the Securities, the assets of the Trust would become subject to
the fiduciary investment standards of ERISA, and transactions occurring between
the Representative, the Trustee, the Servicer, the Security Guaranty Insurer or
any of their affiliates might constitute prohibited transactions, unless an
administrative exemption applies. Certain such exemptions which may be
applicable to the acquisition and holding of the Securities or to the servicing
of the Mortgage Loans are noted below.
Regardless of whether the Securities are treated as debt or equity for
purposes of ERISA, the acquisition or holding of Securities which are Notes by
or behalf of a Plan could still be considered to give rise to a prohibited
transaction if the Trust is or becomes a party in interest or disqualified
person with respect to such Plan or in the event that a subsequent transfer of a
Note is made between a Plan and such party in interest or disqualified person.
However, one or more Investor Based Exemptions referred to below may be
applicable to exempt such prohibited transaction.
The DOL has issued an administrative exemption, Prohibited Transaction
Class Exemption 83-1 ("PTCE 83- 1"), which, under certain conditions, exempts
from the application of the prohibited transaction rules of ERISA and the excise
tax provisions of Section 4975 of the Code transactions involving a Plan in
connection with the operation of a "mortgage pool" and the purchase, sale and
holding of "mortgage pool pass-through certificates." A "mortgage pool" is
defined as an investment pool, consisting solely of interest bearing obligations
secured by first or second mortgages or deeds of trust on single-family
residential property, property acquired in foreclosure and undistributed cash. A
"mortgage pool pass-through certificate" is defined as a certificate which
represents a beneficial undivided interest in a mortgage pool which entitles the
holder to pass-through payments of principal and interest from the mortgage
loans.
For the exemption to apply, PTCE 83-1 requires that (i) the
Representative and the Trustee maintain a system of insurance or other
protection for the Mortgage Loans and the property securing such Mortgage Loans,
and for indemnifying Certificateholders (except holders of the Class R
Certificates) against reductions in pass-through payments due to defaults in
loan payments or property damage in an amount at least equal to the greater of
1% of the aggregate principal balance of the Mortgage Loans, or 1% of the
principal balance of the largest covered pooled Mortgage Loan; (ii) the Trustee
may not be an affiliate of the Representative; and (iii) the payments made to
and retained by the Representative in connection with the Trust, together with
all funds inuring to its benefit for administering the Trust, represent no more
than "adequate consideration" for selling the Mortgage Loans, plus reasonable
compensation for services provided to the Trust.
In addition, PTCE 83-1 exempts the initial sale of Securities to a Plan
with respect to which the Representative, the Security Guaranty Insurer, the
Servicer, or the Trustee is a party in interest if the Plan does not pay more
than fair market value for such Securities and the rights and interests
evidenced by such Securities are not subordinated to the rights and interests
evidenced by other Securities of the same pool. PTCE 83-1 also exempts from the
prohibited transaction rules and transactions in connection with the servicing
and operation of the Pool, provided that any payments made to the Servicer in
connection with the servicing of the Trust are made in accordance with a binding
agreement, copies of which must be made available to prospective investors.
In the case of any Plan with respect to which the Representative, the
Servicer, the Security Guaranty Insurer, or the Trustee is a fiduciary, PTCE
83-1 will only apply if, in addition to the other requirements: (i) the initial
sale, exchange or transfer of Securities is expressly approved by an independent
fiduciary who has authority to manage and control those plan assets being
invested in Securities; (ii) the Plan pays no more for the Securities than would
be paid in an arm's length transaction; (iii) no investment management, advisory
or underwriting fee, sale commission, or similar compensation is paid to the
Representative with regard to the sale, exchange or transfer of Securities to
the Plan; (iv) the total value of the Securities purchased by such Plan does not
exceed 25% of the amount issued; and (v) at least 50% of the aggregate amount of
Securities is acquired by persons independent of the Representative, the
Trustee, the Servicer, and the Security Guaranty Insurer.
Before purchasing Securities, a fiduciary of a Plan should confirm that
the Trust is a "mortgage pool," that the Securities constitute "mortgage pool
pass-through certificates," and that the conditions set forth in PTCE 83-1 would
be satisfied. In addition to making its own determination as to the availability
of the exemptive relief provided in PTCE 83-1, the Plan fiduciary should
consider the availability of any other prohibited transaction exemptions. The
Plan fiduciary also should consider its general fiduciary obligations under
ERISA in determining whether to purchase any Securities on behalf of a Plan.
In addition, the DOL has granted to certain underwriters and/or
placement agents individual prohibited transaction exemptions (each an
"Underwriter Exemption") which may be applicable to avoid certain of the
prohibited transaction rules of ERISA with respect to the initial purchase, the
holding and the subsequent resale in the secondary market by Plans of
pass-through certificates representing a beneficial undivided ownership interest
in the assets of a trust that consist of certain receivables, loans and other
obligations that meet the conditions and requirements of the Underwriter
Exemption which may be applicable to the Securities. The conditions of an
Underwriter Exemption, if applicable, will be set forth in "ERISA
Considerations" in the Prospectus Supplement.
One or more other prohibited transaction exemptions issued by the DOL
may be available to a Plan investing in Securities, depending in part upon the
type of Plan fiduciary making the decision to acquire a Security and the
circumstances under which such decision is made, including but not limited to:
PTCE 90-1, regarding investments by insurance company pooled separate accounts,
PTCE 91-38, regarding investments by bank collective investment funds, PTCE
84-14, regarding investments effectuated by "qualified plan asset managers",
PTCE 96-23, regarding investments effectuated by "in-house asset managers" and
PTCE 95-60, regarding investments by insurance company general accounts
("Investor Based Exemptions"). However, even if the conditions specified in an
Underwriter Exemption or one or more of these other exemptions are met, the
scope of the relief provided might or might not cover all acts which might be
construed as prohibited transactions.
Any Plan fiduciary considering the purchase of a Security should
consult with its counsel with respect to the potential applicability of ERISA
and the Code to such investment. Moreover, each Plan fiduciary should determine
whether, under the general fiduciary standards of investment prudence and
diversification, an investment in the Securities is appropriate for the Plan,
taking into account the overall investment policy of the Plan and the
composition of the Plan's investment portfolio.
LEGAL INVESTMENT CONSIDERATIONS
Each Prospectus Supplement will describe the extent, if any, to which
the Classes of Securities offered thereby will constitute "mortgage related
securities" for purposes of SMMEA. No representation is made herein as to
whether the Securities will constitute legal investments for any entity under
any applicable statute, law, rule, regulation or order. Prospective purchasers
are urged to consult with their counsel concerning the status of the Securities
as legal investments for such purchasers prior to investing in any Class of
Securities.
PLAN OF DISTRIBUTION
The Securities offered hereby will be offered in Series, either
directly by the Representative or through one or more underwriters or
underwriting syndicates ("Underwriters"). The Prospectus Supplement for each
Series will set forth the terms of the offering of such Series and of each Class
within such Series, including the name or names of the Underwriters, the
proceeds to and their use by the Representative and the Originators, and either
the initial public offering price, the discounts and commissions to the
Underwriters and any discounts or concessions allowed or reallowed to certain
dealers, or the method by which the price at which the Underwriters will sell
the Securities will be determined.
The Securities in a Series may be acquired by Underwriters for their
own account and may be resold from time to time in one or more transactions,
including negotiated transactions, at a fixed public offering price or at
varying prices determined at the time of sale. The obligations of any
Underwriters will be subject to certain conditions precedent, and such
Underwriters will be severally obligated to purchase all of a Series of
Securities described in the related Prospectus Supplement, if they are
purchased. If Securities of a Series are offered other than through
Underwriters, the related Prospectus Supplement will contain information
regarding the nature of such offering and any agreements to be entered into
between the seller and purchasers of Securities of such Series.
The place and time of delivery for the Securities of a Series in
respect of which this Prospectus is delivered will be set forth in the related
Prospectus Supplement.
LEGAL MATTERS
Certain legal matters relating to the validly of the issuance of the
Securities of each Series will be passed upon for the Representative by Eric R.
Elwin, Esq., Corporate Counsel of the Representative and certain legal matters
relating to the validity of the issuance of the Securities of each Series will
be passed upon for the Underwriters of the Securities of each Series by Stroock
& Stroock & Lavan LLP, New York, New York. Stroock & Stroock & Lavan LLP has
performed legal services for the Representative and it is expected that it will
continue to perform such services in the future.
EXPERTS
The consolidated financial statements of The Money Store Inc. as of
December 31, 1996 and 1995 and for each of the three years in the period ended
December 31, 1996 incorporated by reference herein have been audited by KPMG
Peat Marwick LLP, independent accountants, as stated in their opinion given upon
their authority as experts in accounting and auditing.
FINANCIAL INFORMATION
A new Trust will be formed to own the Mortgage Assets and to issue each
Series of Securities. Each such Trust will have no assets or obligations prior
to the issuance of the Securities and will not engage in any activities other
than those described herein. Accordingly, no financial statements with respect
to such Trusts are included in this Prospectus.
RATING
It is a condition to the issuance of the Securities of each Series
offered hereby and by the Prospectus Supplement that they shall have been rated
in one of the four highest rating categories by the nationally recognized
statistical rating agency or agencies specified in the related Prospectus
Supplement.
Ratings on mortgage pass-through securities address the likelihood of
receipt by securityholders of all distributions on the underlying mortgage
loans. These ratings address the structural, legal and issuer-related aspects
associated with such securities, the nature of the underlying mortgage loans and
the credit quality of the guarantor, if any. Ratings on mortgage pass-through
securities do not represent any assessment of the likelihood of principal
prepayments by mortgagors or of the degree by which such prepayments might
differ from those originally anticipated. As a result, securityholders might
suffer a lower than anticipated yield, and, in addition, holders of stripped
pass-through securities in extreme cases might fail to recoup their underlying
investments.
A rating of a security is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time by the
assigning rating organization. Each security rating should be evaluated
independently of any other security rating.
<PAGE>
INDEX OF PRINCIPAL TERMS
Unless the context indicates otherwise, the following terms shall have
the meanings set forth on the page indicated below:
Adjustable Rate.......................................... 7
Adjusted Mortgage Loan Remittance Rate................... 53
Agency Securities........................................ 7
Agreement................................................ 6
APR...................................................... 10
ARM...................................................... 101
Auction Rate Securities.................................. 3
Available Remittance Amount.............................. 65
Balloon Loans............................................ 25
Bankruptcy Bond.......................................... 17
Basis Risk Shortfall..................................... 83
Buydown Funds............................................ 84
Cede..................................................... 5
Certificate.............................................. 1
Certificateholders....................................... 1
Class.................................................... 1
Cleanup Costs............................................ 83
CMOs..................................................... 10
Code..................................................... 21
Commission............................................... 4
Compensating Interest.................................... 20
Contingency Fees......................................... 64
Contracts................................................ 7
Conventional Loans....................................... 7
Cooperative Loans........................................ 7
Cooperatives............................................. 7
Curtailment.............................................. 20
Custodian................................................ 64
Cut-off Date............................................. 48
Designated Depository Institution........................ 65
Detailed Description..................................... 30
Determination Date....................................... 20
Distribution Account..................................... 65
DTC...................................................... 5
Due Period............................................... 65
ERISA.................................................... 23
Event of Nonpayment...................................... 69
Federal Tax Counsel...................................... 21
FHA...................................................... 7
FHA Loans................................................ 7
FHLMC.................................................... 10
Final Determination...................................... 70
Fixed Rate............................................... 7
FNMA..................................................... 7
FTC Rule................................................. 80
Funding Period........................................... 11
Garn-St. Germain Act..................................... 81
GNMA..................................................... 7
Guaranty Insurance Policy................................ 16
Home Equity Loans........................................ 32
HUD...................................................... 9
Indirect Participant..................................... 54
Insurance Proceeds....................................... 20
Insurance Paying Agent................................... 57
Insured Payment.......................................... 57
Interest Period.......................................... 53
Interest Rate............................................ 3
IRS...................................................... 70
LIBOR.................................................... 3
Liquidation Proceeds..................................... 20
Loan-to-Value Ratio...................................... 32
Lockout Periods.......................................... 8
Lower Tier REMIC......................................... 93
Majority Securityholders................................. 68
Manufactured Homes....................................... 35
Manufacturer's Invoice Price............................. 32
Master Servicer.......................................... 1
Monthly Advance.......................................... 20
Mortgage Asset Schedule.................................. 30
Mortgage Assets.......................................... 1
Mortgage Interest Rate................................... 7
Mortgage Loans........................................... 7
Mortgage Pool Insurance Policy........................... 17
Mortgaged Properties..................................... 8
Multifamily Loans........................................ 7
NHA Act.................................................. 35
1933 Act................................................. 4
Non-REMIC Certificates................................... 22
Noteholders.............................................. 1
Notes.................................................... 1
Opinion of Counsel....................................... 64
Originators.............................................. 1
Participants............................................. 54
Pass-Through Rate........................................ 3
Permitted Instruments.................................... 65
Permitted Investments.................................... 60
Plan..................................................... 109
PMBS..................................................... 7
PMBS Agreement........................................... 42
PMBS Issuer.............................................. 11
PMBS Servicer............................................ 11
PMBS Trustee............................................. 11
Pool..................................................... 1
Pool Insurer............................................. 58
Pre-Funding Account...................................... 11
Prepayment Assumption.................................... 86
Principal and Interest Account........................... 65
Principal Prepayment Period.............................. 51
Principal Prepayment..................................... 20
Qualified Substitute Mortgage Loan....................... 64
Rating Agency............................................ 18
REIT .................................................... 94
Relief Act............................................... 29
REMIC.................................................... 3
REMIC Certificates....................................... 83
REMIC Regular Certificates............................... 21
REMIC Residual Certificates.............................. 21
REMIC Regulations........................................ 84
Remittance Date.......................................... 3
Representative........................................... 1
Reserve Account.......................................... 16
Secured Conventional Home Improvement Loans.............. 7
Security Guaranty Insurer................................ 57
Security Register........................................ 50
Senior Certificates...................................... 13
Senior Notes............................................. 15
Servicing Advance........................................ 66
Servicing Fees........................................... 64
Single Family Loans...................................... 7
SMMEA.................................................... 23
Special Hazard Insurance Policy.......................... 17
Special Hazard Insurer................................... 59
Spread Amount............................................ 17
Standard Hazard Insurance Policies....................... 8
Subordinated Certificates................................ 13
Subordinated Notes....................................... 15
Sub-Servicer............................................. 68
Substitution Adjustment.................................. 64
Successor Servicer....................................... 69
Superlien................................................ 83
Supplemental Interest Payments........................... 60
T-Bill Rate.............................................. 3
Termination Notice....................................... 70
Termination Price........................................ 70
Tiered REMICs............................................ 84
Title I Loan Program..................................... 9
Title I Property Improvement Loans....................... 35
Title V.................................................. 81
Trust ................................................... 1
Trustee.................................................. 21
Trustee's Mortgage File.................................. 64
UCC...................................................... 54
Underwriters............................................. 111
United States person..................................... 97
Unsecured Home Improvement Loans......................... 7
VA....................................................... 7
Variable Rate Non-REMIC Certificates..................... 101
Variable Rate REMIC Regular Certificates................. 85
Yield Supplement Agreement............................... 83
<PAGE>
APPENDIX I
AUCTION PROCEDURES
The following description of the Auction Procedures applies to each
Class of Auction Rate Securities (and may be different if otherwise set forth in
a related Prospectus Supplement). The term "Security," as used in this Appendix,
refers to each Class of Auction Rate Securities that are either Notes or
Certificates and the term "Securityholder" refers to Holders of Auction Rate
Securities.
DEFINITIONS
Capitalized terms used herein and not otherwise defined have the
meanings ascribed in the accompanying Prospectus and Prospectus Supplement.
Additionally, the following terms have the meanings ascribed to them:
"All Hold Rate" means ninety percent (90%) of One-Month LIBOR or such
other rate as may be set forth in the related Prospectus Supplement.
"Auction" means the implementation of the Auction Procedures on an
Auction Date.
"Auction Agent" means the initial auction agent under the initial
Auction Agent Agreement unless and until a substitute Auction Agent Agreement
becomes effective, after which "Auction Agent" shall mean the substitute auction
agent.
"Auction Agent Agreement" means the initial Auction Agent Agreement
unless and until a substitute Auction Agent Agreement is entered into, after
which "Auction Agent Agreement" shall mean such substitute Auction Agent
Agreement.
"Auction Agent Fee" has the meaning set forth in the Auction Agent
Agreement.
"Auction Agent Fee Rate" has the meaning set forth in the Auction
Agent Agreement.
"Auction Date" means, with respect to the Initial Period for each
Class of Securities, the date set forth in the related Prospectus Supplement and
thereafter, the Business Day immediately preceding the first day of each Auction
Period for each Security, other than:
(A) each Auction Period commencing after the ownership of the
Securities is no longer maintained in Book-Entry Form by DTC;
(B) each Auction Period commencing after and during
the continuance of an Event of Default; or
(C) each Auction Period commencing less than two Business Days
after the cure or waiver of an Event of Default.
Notwithstanding the foregoing, the Auction Date for one or more Auction Periods
may be changed pursuant to the related Agreement and the related Terms
Supplement, as described herein.
"Auction Period" means, with respect to each Security, the Interest
Period applicable to such Security during which time the applicable Security
Interest Rate is determined pursuant to the related Agreement and the related
Terms Supplement, which Auction Period (after the Initial Period for such
Security) initially shall consist of between 7 days and one year (as set forth
in the related Prospectus Supplement), as the same may be adjusted pursuant to
such related Agreement and the related Terms Supplement.
"Auction Period Adjustment" means an adjustment to the Auction Period
as provided in the related Terms Supplement, as described herein.
"Auction Procedures" means the procedures set forth in the related
Terms Supplement and described herein by which the Auction Rate applicable to a
Security is determined.
"Auction Rate" means, with respect to any Security, the rate of
interest per annum that results from the implementation of the Auction
Procedures and is determined as described in the related Agreement and the
related Terms Supplement and this Appendix I.
"Authorized Denominations" means, the dollar amount set forth in the
related Prospectus Supplement and any integral multiple in excess thereof.
"Broker-Dealer" means the initial broker-dealer under the initial
Broker-Dealer Agreement or any other broker or dealer (each as defined in the
Securities Exchange Act of 1934, as amended), commercial bank or other entity
permitted by law to perform the functions required of a Broker-Dealer set forth
in the Auction Procedures that (a) is a Participant (or an affiliate of a
Participant), (b) has been appointed as such by the Representative and the
Trustee pursuant to the related Agreement and (c) has entered into a
Broker-Dealer Agreement that is in effect on the date of reference.
"Broker-Dealer Agreement" means each agreement between the Auction
Agent and a Broker-Dealer, and approved by Representative and the Trust,
pursuant to which the Broker-Dealer agrees to participate in Auctions as set
forth in the Auction Procedures, as from time to time amended or supplemented.
"Broker-Dealer Fee" has the meaning set forth in the Auction Agent
Agreement.
"Broker-Dealer Fee Rate" has the meaning set forth in the Auction
Agent Agreement.
"Effective Interest Rate" means, for any Mortgage Loan and any
collection period, the per annum rate at which such Mortgage Loan accrues
interest during such collection period.
"Existing Securityholder" means (i) with respect to and for the
purpose of dealing with the Auction Agent in connection with an Auction, a
Person who is a Broker-Dealer listed in the Existing Securityholder Registry at
the close of business on the Business Day immediately preceding such Auction and
(ii) with respect to and for the purpose of dealing with the Broker-Dealer in
connection with an Auction, a Person who is a beneficial owner of any Security.
"Existing Securityholder Registry" means the registry of Persons who
are owners of the Securities, maintained by the Auction Agent as provided in the
Auction Agent Agreement.
"Federal Funds Rate" means, for any date of determination, the federal
funds (effective) rate as published on page 118 of the Dow Jones Telerate
Service (or such other page as may replace that page on that service for the
purpose of displaying comparable rates or prices) on the immediately preceding
Business Day. If no such rate is published on such page on such date, "Federal
Funds Rate" shall mean for any date of determination, the Federal funds
(effective) rate as published by the Federal Reserve Board in the most recent
edition of Federal Reserve Statistical Release No. H.15 (519) that is available
on the Business Day immediately preceding such date.
"Initial Period" means, as to any Security, the period commencing on
the Closing Date of such Security and continuing through the day immediately
preceding the Security Initial Rate Adjustment Date for such Security.
"Interest Period" means, with respect to a Security, the Initial
Period for such Security and each period commencing on the Rate Adjustment Date
for such Security and ending on the day before (i) the next Rate Adjustment Date
for such Security or (ii) the final maturity date of such Security, as
applicable.
"Market Agent" means the entity named as market agent under the
related Agreement, or any successor to it in such capacity thereunder.
"Maximum Auction Rate" generally means (i) for Auction Periods of 34
days or less, either (A) the greater of (1) One-Month LIBOR plus 0.60% or (2)
the Federal Funds Rate plus 0.60% (if both ratings assigned by the Rating
Agencies to the applicable Security are "Aa3" or "AA-" or better) or (B)
One-Month LIBOR plus 1.50% (if any one of the ratings assigned by the Rating
Agencies to the Security is less than "Aa3" or "AA-") or (ii) for Auction
Periods of greater than or equal to 35 days, either (A) the greater of One-Month
LIBOR or Three-Month LIBOR, plus in either case, 0.60% (if both of the ratings
assigned by the Rating Agencies to the applicable Security are "Aa3" or "AA-" or
better) or (B) the greater of One-Month LIBOR or Three-Month LIBOR, plus in
either case, 1.50% (if any one of the ratings assigned by the Rating Agencies to
the applicable Security is less than "Aa3" or "AA-") or such other rate as may
be set forth in the related Prospectus Supplement. For purposes of the Auction
Agent and the Auction Procedures, the ratings referred to in this definition
shall be the last ratings of which the Auction Agent has been given notice
pursuant to the Auction Agent Agreement.
"Net Loan Rate" for any Interest Period will equal the weighted
average Effective Interest Rate for the Collection Period immediately preceding
such Interest Period less the amount set forth in the related Prospectus
Supplement.
"Non-Payment Rate" means One-Month LIBOR plus 1.50%, as the same may
be adjusted pursuant to a Terms Supplement or such other rate as may be set
forth in the related Prospectus Supplement.
"Person" means any individual, corporation, estate, partnership, joint
venture, association, joint stock company, trust (including any beneficiary
thereof), unincorporated organization or government or any agency or political
subdivision thereof.
"Potential Securityholder" means any Person (including an Existing
Securityholder that is (i) a Broker-Dealer when dealing with the Auction Agent
and (ii) a potential beneficial owner when dealing with a Broker-Dealer) who may
be interested in acquiring Securities (or, in the case of an Existing
Securityholder thereof, an additional principal amount of Securities).
"Rate Adjustment Date" means, with respect to each Security, the date
on which the applicable Security Interest Rate is effective and means, with
respect to each such Security, the date of commencement of each Auction Period.
"Rate Determination Date" means, with respect to any Security, the
Auction Date, or if no Auction Date is applicable to such Series, the Business
Day immediately preceding the date of commencement of an Auction Period.
"Security Initial Rate" means, with respect to any Class of Notes or
Certificates, the rate identified as such in the related Prospectus Supplement.
"Security Initial Rate Adjustment Date" means, with respect to any
Class of Notes, the date identified as such in the related Prospectus Supplement
and, with respect to any Class of Certificates, the date set forth in the
related Agreement or the related Terms Supplement.
"Three-Month LIBOR" means the London interbank offered rate for
deposits in U.S. dollars having a maturity of three months commencing on the
related LIBOR Determination Date (the "Three-Month Index Maturity") which
appears on Telerate Page 3750 as of 11:00 a.m., London time, on such LIBOR
Determination Date. If such rate does not appear on Telerate Page 3750, the rate
for that day will be determined on the basis of the rates at which deposits in
U.S. dollars, having the Three Month Index Maturity and in a principal amount of
not less than U.S. $1,000,000, are offered at approximately 11:00 a.m., London
time, on such LIBOR Determination Date to prime banks in the London interbank
market by the Reference Banks. The Auction Agent will request the principal
London office of each of such Reference Banks to provide a quotation of its
rate. If at least two such quotations are provided, the rate for that day will
be the arithmetic mean of the quotations. If fewer than two quotations are
provided, the rate for that day will be the arithmetic mean of the rates quoted
by major banks in New York City, selected by the Auction Agent, at approximately
11:00 a.m., New York City time, on such LIBOR Determination Date for loans in
U.S. dollars to leading European banks having the Three Month Index Maturity and
in a principal amount equal to an amount of not less than U.S. $1,000,000;
provided that if the banks selected as aforesaid are not quoting as mentioned in
this sentence, Three-Month LIBOR in effect for the applicable Interest Period
will be Three-Month LIBOR in effect for the previous Interest Period.
EXISTING SECURITYHOLDERS AND POTENTIAL SECURITYHOLDERS
Participants in each Auction will include: (1) "Existing
Securityholders," which shall mean any Securityholder according to the records
of the Auction Agent at the close of business on the Business Day preceding each
Auction Date; and (ii) "Potential Securityholders," which shall mean any person,
including any Existing Securityholder or a Broker/Dealer, who may be interested
in acquiring Securities (or, in the case of an Existing Securityholder, an
additional principal amount of the Security such Securityholder then holds). See
"--Broker-Dealer."
By purchasing a Security, whether in an Auction or otherwise, each
prospective purchaser of Securities or its Broker-Dealer must agree and will be
deemed to have agreed: (i) to participate in Auctions on the terms described
herein; (ii) so long as the beneficial ownership of the Securities is maintained
in Book-Entry Form to sell, transfer or otherwise dispose of the Securities only
pursuant to a Bid (as defined below) or a Sell Order (as defined below) in an
Auction, or to or through a Broker-Dealer, provided that in the case of all
transfers other than those pursuant to an Auction, the Existing Securityholder
of the Securities so transferred, its Participant or Broker-Dealer advises the
Auction Agent of such transfer; (iii) to have its beneficial ownership of
Securities maintained at all times in Book-Entry Form for the account of its
Participant, which in turn will maintain records of such beneficial ownership,
and to authorize such Participant to disclose to the Auction Agent such
information with respect to such beneficial ownership as the Auction Agent may
request; (iv) that a Sell Order placed by an Existing Securityholder will
constitute an irrevocable offer to sell the principal amount of the Security
specified in such Sell Order; (v) that a Bid placed by an Existing
Securityholder will constitute an irrevocable offer to sell the principal amount
of the Security specified in such Bid if the rate specified in such Bid is
greater than, or in some cases equal to, the Security Interest Rate of such
Security, determined as described herein; and (vi) that a Bid placed by a
Potential Securityholder will constitute an irrevocable offer to purchase the
amount, or a lesser principal amount, of the Security specified in such Bid if
the rate specified in such Bid is, respectively, less than or equal to the
Security Interest Rate of the specified Security, determined as described
herein.
The principal amount of the Securities purchased or sold may be
subject to probation procedures on the Auction Date. Each purchase or sale of
Securities on the Auction Date will be made for settlement on the first day of
the Interest Period immediately following such Auction Date at a price equal to
100% of the principal amount thereof, plus accrued but unpaid interest thereon.
The Auction Agent is entitled to rely upon the terms of any Order submitted to
it by a Broker-Dealer.
Auction Agent
The entity named in the related Prospectus Supplement, will be
appointed as Auction Agent to serve as agent for a Trust in connection with
Auctions. The Trustee and the Representative will enter into the Auction
Agreement with the Auction Agent. Any Auction Agent or Substitute Auction Agent
will be (i) a bank, national banking association or trust company duly organized
under the laws of the United States of America or any state or territory thereof
having its principal place of business in the Borough of Manhattan, New York, or
such other location as approved by the Trustee and the Market Agent in writing
and having a combined capital stock or surplus of at least $50,000,000, or (ii)
a member of the National Association of Securities Dealers, Inc. having a
capitalization of at least $50,000,000, and, in either case, authorized by law
to perform all the duties imposed upon it under the related Agreement and under
the Auction Agent Agreement. The Auction Agent may at any time resign and be
discharged of the duties and obligations created by the related Agreement by
giving at least 90 days notice to the Trustee, the Trust, the Representative and
the Market Agent. The Auction Agent may be removed at any time by the Trustee
upon the written direction of the Security Guaranty Insurer, if applicable, or,
with the consent of the Security Guaranty Insurer, if applicable, the
Securityholders of 66B% of the aggregate principal amount of the Securities then
outstanding, by an instrument signed by the Security Guaranty Insurer, if
applicable, or such Securityholders or their attorneys and filed with the
Auction Agent, the Representative, the Trustee and the Market Agent upon at
least 90 days' notice. Neither resignation nor removal of the Auction Agent
pursuant to the preceding two sentences will be effective until and unless a
Substitute Auction Agent has been appointed and has accepted such appointment.
If required by the Trust or the Representative or by the Market Agent, with the
Trust's and the Representative's consent, a Substitute Auction Agent Agreement
shall be entered into with a Substitute Auction Agent. Notwithstanding the
foregoing, the Auction Agent may terminate the Auction Agent Agreement if,
within 25 days after notifying the Trustee, the Trust, the Representative, the
Security Guaranty Insurer, if applicable, and the Market Agent in writing that
it has not received payment of any Auction Agent Fee due it in accordance with
the terms of the Auction Agent Agreement, the Auction Agent does not receive
such payment.
If the Auction Agent should resign or be removed or be dissolved, or
if the property or affairs of the Auction Agent shall be taken under the control
of any state or federal court or administrative body because of bankruptcy or
insolvency, or for any other reason, the Trustee, at the direction of the
Representative (after receipt of a certificate from the Market Agent confirming
that any proposed Substitute Auction Agent meets the requirements described in
the immediately preceding paragraph above), shall use its best efforts to
appoint a Substitute Auction Agent.
The Auction Agent is acting as agent for the Trust in connection with
Auctions. In the absence of bad, faith, negligent failure to act or negligence
on its part, the Auction Agent will not be liable for any action taken, suffered
or omitted or any error of judgment made by it in the performance of its duties
under the Auction Agent Agreement and will not be liable for any error of
judgment made in good faith unless the Auction Agent will have been negligent in
ascertaining (or failing to ascertain) the pertinent facts.
The Trustee will pay the Auction Agent the Auction Agent Fee on the
Note Remittance Date or Certificate Remittance Date set forth in the related
Prospectus Supplement, and will reimburse the Auction Agent upon its request for
all reasonable expenses, disbursements and advances incurred or made by the
Auction Agent in accordance with any provision of the Auction Agent Agreement or
the Broker-Dealer Agreements (including the reasonable compensation and the
expenses and disbursements of its agents and counsel). The Trust will indemnify
and hold harmless the Auction Agent for and against any loss, liability or
expense incurred without negligence or bad faith on the Auction Agent's part,
arising out of or in connection with the acceptance or administration of its
agency under the Auction Agent Agreement and the Broker-Dealer Agreements
including the reasonable costs and expenses (including the reasonable fees and
expenses of its counsel) of defending itself against any such claim or liability
in connection with its exercise or performance of any of its respective duties
thereunder and of enforcing this indemnification provision; provided that the
Trust will not indemnify the Auction Agent as described in this paragraph for
any fees and expenses incurred by the Auction Agent in the normal course of
performing its duties under the Auction Agent Agreement and under the
Broker-Dealer Agreements, such fees and expenses being payable as described
above.
Broker-Dealer
Existing Securityholders and Potential Securityholders may participate
in Auctions only by submitting orders (in the manner described below) through a
"Broker-Dealer," including the Broker-Dealer, as the sole Broker-Dealer or any
other broker or dealer (each as defined in the Securities Exchange Act of 1934,
as amended), commercial bank or other entity permitted by law to perform the
functions required of a Broker-Dealer set forth below which (i) is a Participant
or an affiliate of a Participant, (ii) has been selected by the Trust and (iii)
has entered into a Broker-Dealer Agreement with the Auction Agent that remains
effective, in which the Broker-Dealer agrees to participate in Auctions as
described in the Auction Procedures, as from time to time amended or
supplemented.
The Broker-Dealers are entitled to a Broker-Dealer Fee, which is
payable by the Auction Agent from monies received from the Trustee, on the Note
Remittance Date or Certificate Remittance Date set forth in the related
Prospectus Supplement.
Market Agent
In connection with each Series of Notes and the Certificates, the
"Market Agent," will act solely as agent of the Trust and will not assume any
obligation or relationship of agency or trust for or with any of the
Securityholders.
AUCTION PROCEDURES
General
Pursuant to the related Agreement and the related Terms Supplement,
Auctions to establish the Auction Rate for each Security issued by the Trust
will be held on each applicable Auction Date, except as described below, by
application of the Auction Procedures described herein. Such procedures are to
be applicable separately to each Class of Notes and each Class of Certificates.
The Auction Agent will calculate the Maximum Auction Rate, the All
Hold Rate and One-Month LIBOR or Three-Month LIBOR, as the case may be, on each
Auction Date. The Administrator will calculate and, no later than the Business
Day preceding each Auction Date, will report to the Auction Agent in writing,
the Net Loan Rate. If the ownership of a Security is no longer maintained in
Book-Entry Form, the Trustee will calculate the Maximum Auction Rate, and
Administrator will report to the Trustee in writing the Net Loan Rate, on the
Business Day immediately preceding the first day of each Interest Period
commencing after delivery of such Security. If an Event of Default has occurred,
under the Indenture or the Pooling and Servicing Agreement, as applicable, the
Trustee will calculate the Non-Payment Rate on the Rate Determination Date for
(i) each Interest Period commencing after the occurrence and during the
continuance of such Payment Default and (ii) any Interest Period commencing less
than two Business Days after the cure of any Event of Default. The Auction Agent
will determine One-Month LIBOR or the Three-Month LIBOR, as applicable, for each
Interest Period other than the Initial Period for a Security; provided, that if
the ownership of the Securities is no longer maintained in Book-Entry Form, or
if an Event of Default has occurred, then the Trustee will determine the
One-Month LIBOR or the Three-Month LIBOR, as applicable, for each such Interest
Period. The determination by the Trustee or the Auction Agent, as the case may
be, of the One-Month LIBOR or the Three-Month LIBOR, as applicable, will (in the
absence of manifest error) be final and binding upon the Securityholders and all
other parties. If calculated or determined by the Auction Agent, the Auction
Agent will promptly advise the Trustee of the One- Month LIBOR or the
Three-Month LIBOR, as applicable.
Submission of Orders
So long as the ownership of the Securities is maintained in Book-Entry
Form, an Existing Securityholder may sell, transfer or otherwise dispose of
Securities only pursuant to a Bid or Sell Order (as hereinafter defined) placed
in an Auction or through a Broker-Dealer, provided that, in the case of all
transfers other than pursuant to Auctions, such Existing Securityholder, its
Broker-Dealer or its Participant advises the Auction Agent of such transfer.
Auctions for each Class of Notes and each Class of Certificates will be
conducted on each applicable Auction Date, if there is an Auction Agent on such
Auction Date, in the following manner (such procedures to be applicable
separately to each Class of Notes and each Class of Certificates).
Prior to the Submission Deadline (defined as 1:00 p.m., eastern time,
on any Auction Date or such other time on any Auction Date by which
Broker-Dealers are required to submit Orders to the Auction Agent as specified
by the Auction Agent from time to time) on each Auction Date relating to a
Security:
(a) each Existing Securityholder of the applicable Security may
submit to a Broker-Dealer by telephone or otherwise information as to: (i) the
principal amount and Class of outstanding Securities, if any, held by such
Existing Securityholder which such Existing Securityholder desires to continue
to hold without regard to the Security Interest Rate for such Securities for the
next succeeding Auction Period (a "Hold Order"); (ii) the principal amount and
Class of outstanding Securities, if any, which such Existing Securityholder
offers to sell if the Security Interest Rate for such Securities for the next
succeeding Auction Period will be less than the rate per annum specified by such
Existing Securityholder (a "Bid"); and/or (iii) the principal amount and Class
of outstanding Securities, if any, held by such Existing Securityholder which
such Existing Securityholder offers to sell without regard to the Security
Interest Rate for such Securities for the next succeeding Auction Period (a
"Sell Order"); and
(b) one or more Broker-Dealers may contact Potential
Securityholders to determine the principal amount and Class of Securities which
each such Potential Securityholder offers to purchase, if the Security Interest
Rate for such Securities for the next succeeding Auction Period will not be less
than the rate per annum specified by such Potential Securityholder (also a
"Bid").
Each Hold Order, Bid and Sell Order will be an "Order." Each Existing
Securityholder and each Potential Securityholder placing an Order is referred to
as a "Bidder."
Subject to the provisions described below under "Validity of Orders,"
a Bid by an Existing Securityholder will constitute an irrevocable offer to
sell: (i) the principal amount and Class of the outstanding Securities specified
in such Bid if the Security Interest Rate for such Securities will be less than
the rate specified in such Bid, (ii) such principal amount or a lesser principal
amount and Class of the outstanding Securities to be determined as described
below in "Acceptance and Rejection of Orders," if the Security Interest Rate for
such Securities will be equal to the rate specified in such Bid or (iii) such
principal amount or a lesser principal amount of the then outstanding Securities
to be determined as described below under "Acceptance and Rejection of Orders,"
if the rate specified therein will be higher than the Security Interest Rate for
such Securities and Sufficient Bids (as defined below) have not been made.
Subject to the provisions described below under "Validity of Orders,"
a Sell Order by an Existing Securityholder will constitute an irrevocable offer
to sell: (i) the principal amount of the Security specified in such Sell Order
or (ii) such principal amount or a lesser principal amount of outstanding
Securities of the specified Security as described below under "Acceptance and
Rejection of Orders," if Sufficient Bids have not been made.
Subject to the provisions described below under "Validity of Orders,"
a Bid by a Potential Securityholder will constitute an irrevocable offer to
purchase: (i) the principal amount of the Security specified in such Bid if the
Security Interest Rate for such Securities will be higher than the rate
specified in such Bid or (ii) such principal amount or a lesser principal amount
of such Securities as described below in "Acceptance and Rejection of Orders,"
if the Security Interest Rate is equal to the rate specified in such Bid.
Each Broker-Dealer will submit in writing to the Auction Agent prior
to the Submission Deadline on each Auction Date all Orders obtained by such
Broker-Dealer and will specify with respect to each such Order: (i) the name of
the Bidder placing such Order; (ii) the aggregate principal amount and Class of
Security that are the subject of such Order; (iii) to the extent that such
Bidder is an Existing Securityholder: (a) the principal amount and Class of
Securities, if any, subject to any Hold Order placed by such Existing
Securityholder; (b) the principal amount, and Class of Securities, if any,
subject to any Bid placed by such Existing Securityholder and the rate specified
in such Bid; and (c) the principal amount, and Class of Securities, if any,
subject to any Sell Order placed by such Existing Securityholder, and (iv) to
the extent such Bidder is a Potential Securityholder, the rate specified in such
Potential Securityholder's Bid.
If any rate specified in any Bid contains more than three figures to
the right of the decimal point, the Auction Agent will round such rate up to the
next highest one-thousandth (.001) of one percent.
If an Order or Orders covering all Securities of the applicable Class
held by any Existing Securityholder are not submitted to the Auction Agent prior
to the Submission Deadline, the Auction Agent will deem a Hold Order to have
been submitted on behalf of such Existing Securityholder covering the principal
amount of Securities held by such Existing Securityholder and not subject to an
Order submitted to the Auction Agent.
Neither the Trust, the Representative, the Trustee nor the Auction
Agent will be responsible for any failure of a Broker-Dealer to submit an Order
to the Auction Agent on behalf of any Existing Securityholder or Potential
Securityholder.
An Existing Securityholder may submit multiple Orders, of different
types and specifying different rates, in an Auction with respect to Securities
then held by such Existing Securityholder. An Existing Securityholder that
offers to purchase additional Securities is, for purposes of such offer, treated
as a Potential Securityholder.
Any Bid specifying a rate higher than the Maximum Auction Rate will
(i) be treated as a Sell Order if submitted by a Existing Securityholder and
(ii) not be accepted if submitted by a Potential Securityholder.
Validity of Orders
If any Existing Securityholder submits through a Broker-Dealer to the
Auction Agent one or more Orders covering in the aggregate more than the
principal amount of the Class of Securities held by such Existing
Securityholder, such Orders will be considered valid as follows and in the order
of priority described below.
Hold Orders. All Hold Orders will be considered valid, but only up to
the aggregate principal amount of the Class of Securities held by such Existing
Securityholder, and if the aggregate principal amount of the Class of Securities
subject to such Hold Orders exceeds the aggregate principal amount of the Class
of Securities held by such Existing Securityholder, the aggregate principal
amount of the Class of Securities subject to each such Hold Order will be
reduced pro rata so that the aggregate principal amount of the Class of
Securities subject to all such Hold Orders equals the aggregate principal amount
of the Class of Securities held by such Existing Securityholder.
Bids. Any Bid will be considered valid up to an amount equal to the
excess of the principal amount of the Class of Securities held by such Existing
Securityholder over the aggregate principal amount of such Security, subject to
any Hold Orders referred to above. Subject to the preceding sentence, if
multiple Bids with the same rate are submitted on behalf of such Existing
Securityholder and the aggregate principal amount of Securities subject to such
Bids is greater than such excess, such Bids will be considered valid up to an
amount equal to such excess. Subject to the two preceding sentences, if more
than one Bid with different rates are submitted on behalf of such Existing
Securityholder, such Bids will be considered valid first in the ascending order
of their respective rates until the highest rate is reached at which such excess
exists and then at such rate up to the amount of such excess. In any event, the
aggregate principal amount of Securities, if any, subject to Bids not valid
under the provisions described above will be treated as the subject of a Bid by
a Potential Securityholder at the rate therein specified.
Sell Orders. All Sell Orders will be considered valid up to an amount
equal to the excess of the principal amount of Securities of the Class held by
such Existing Securityholder over the aggregate principal amount of Securities
subject to valid Hold Orders and valid Bids as referred to above.
If more than one Bid for a Class of Security is submitted on behalf of
any Potential Securityholder, each Bid submitted will be a separate Bid with the
rate and principal amount therein specified. Any Bid or Sell Order submitted by
an Existing Securityholder covering an aggregate principal amount of Securities
not equal to an Authorized Denomination or an integral multiple thereof will be
rejected and will be deemed a Hold Order. Any Bid submitted by a Potential
Securityholder covering an aggregate principal amount of Securities not equal to
an Authorized Denomination or an integral multiple thereof will be rejected. Any
Order submitted in an Auction by a Broker-Dealer to the Auction Agent prior to
the Submission Deadline on any Auction Date will be irrevocable.
A Hold Order, a Bid or a Sell Order that has been determined valid
pursuant to the procedures described above is referred to as a "Submitted Hold
Order," a "Submitted Bid" and a "Submitted Sell Order," respectively
(collectively, "Submitted Orders").
Determination of Sufficient Bid and Bid Auction Rate
Not earlier than the Submission Deadline on each Auction Date, the
Auction Agent will assemble all valid Submitted Orders and will determine:
(a) for the applicable Security, the excess of the total
principal amount of such Securities over the sum of the aggregate principal
amount of such Securities subject to Submitted Hold Orders (such excess being
hereinafter referred to as the "Available Securities"); and
(b) from such Submitted Orders whether the aggregate principal
amount of Securities of such Class subject to Submitted Bids by Potential
Securityholders specifying one or more rates equal to or lower than the Maximum
Auction Rate exceeds or is equal to the sum of (i) the aggregate principal
amount of Securities of such Class subject to Submitted Bids by Existing
Securityholders specifying one or more rates higher than the Maximum Auction
Rate and (ii) the aggregate principal amount of Securities of such Class subject
to Submitted Sell Orders (in the event such excess or such equality exists other
than because all of the Securities are subject to Submitted Hold Orders, such
Submitted Bids by Potential Securityholders above will be hereinafter referred
to collectively as "Sufficient Bids"); and
(c) if Sufficient Bids exist, the "Bid Auction Rate," which
will be the lowest rate specified in such Submitted Bids such that if:
(i) each such Submitted Bid from Existing
Securityholders of such Security specifying such lowest rate
and all other Submitted Bids from Existing Securityholders of
such Security specifying lower rates were rejected (thus
entitling such Existing Securityholders to continue to hold the
principal amount of Securities subject to such Submitted Bids);
and
(ii) each such Submitted Bid from Potential
Securityholders of such Security specifying such lowest rate
and all other Submitted Bids from Potential Securityholders
specifying lower rates, were accepted, the result would be that
such Existing Securityholders described in subparagraph (c)(i)
above would continue to hold an aggregate principal amount of
Securities which, when added to the aggregate principal amount
of Securities to be purchased by such Potential Securityholders
described in this subparagraph (ii) would equal not less than
the Available Securities.
Determination of Auction Rate and Security Interest Rate, Notice
Promptly after the Auction Agent has made the determinations described
above, the Auction Agent is to advise the Trustee of the Net Loan Rate, the
Maximum Auction Rate, the All Hold Rate and the components thereof on the
Auction Date, and based on such determinations, the Auction Rate for the next
succeeding Interest Period for the applicable Security as follows:
(a) if Sufficient Bids exist, that the Auction Rate for the
next succeeding Interest Period will be equal to the Bid Auction Rate so
determined;
(b) if Sufficient Bids do not exist (other than because all of
the Securities of the applicable Security are subject to Submitted Hold Orders),
that the Auction Rate for the next succeeding Interest Period will be equal to
the Maximum Auction Rate; or
(c) if all Securities of the applicable Security are subject to
Submitted Hold Orders, that the Auction Rate for the next succeeding Interest
Period will be equal to the All Hold Rate.
Promptly after the Auction Agent has determined the Auction Rate, the
Auction Agent will determine and advise the Trustee of the Security Interest
Rate for each applicable Security, which rate will be the lesser of (a) the
Auction Rate for each such Security and (b) the Net Loan Rate. In no event shall
a Security Interest Rate exceed the rate (the "Security Interest Rate
Limitation") set forth in the related Prospectus Supplement.
Acceptance and Rejection of Orders
Existing Securityholders of the applicable Security will continue to
hold the principal amount of Securities of such Class that are subject to
Submitted Hold Orders. If, with respect to a Security, the Net Loan Rate is
equal to or greater than the Bid Auction Rate and if Sufficient Bids, as
described above under "Determination of Sufficient Bids and Bid Auction Rate,"
have been received by the Auction Agent, the Bid Auction Rate will be the
Security Interest Rate, and Submitted Bids and Submitted Sell Orders will be
accepted or rejected and the Auction Agent will take such other action as
provided in the related Agreement and described below under "Sufficient Bids."
If the Net Loan Rate is less than the Auction Rate, the Security
Interest Rate will be the Net Loan Rate. If the Auction Rate and the Net Loan
Rate are both greater than the Security Interest Rate Limitation, the Security
Interest Rate for each series shall be equal to the Security Interest Rate
Limitation. If the Auction Agent has not received Sufficient Bids as described
above under "Determination of Sufficient Bids and Bid Auction Rate" (other than
because all of the Securities are subject to Submitted Holds Orders), the
Security Interest Rate will be the lesser of the Maximum Auction Rate or the Net
Loan Rate. In any of the cases described above in this paragraph, Submitted
Orders will be accepted or rejected and the Auction Agent will take such other
action as described below under "Insufficient Bids."
Sufficient Bids. If Sufficient Bids have been made with a respect to a
Security and the Net Loan Rate is equal to or greater than the Bid Auction Rate
(in which case the Interest Rate shall be the Bid Auction Rate), all Submitted
Sell Orders will be accepted and, subject to the denomination requirements
described below, Submitted Bids will be accepted or rejected as follows in the
following order of priority and all other Submitted Bids will be rejected:
(a) Existing Securityholders' Submitted Bids specifying any
rate that is higher than the Security Interest Rate will be accepted, thus
requiring each such Existing Securityholder to sell the aggregate principal
amount of Securities subject to such Submitted Bids;
(b) Existing Securityholders' Submitted Bids specifying any
rate that is lower than the Security Interest Rate will be rejected, thus
entitling each such Existing Securityholder to continue to hold the aggregate
principal amount of Securities subject to such Submitted Bids;
(c) Potential Securityholders' Submitted Bids specifying any
rate that is lower than the Security Interest Rate will be accepted;
(d) Each Existing Securityholder's Submitted Bid specifying a
rate that is equal to the Security Interest Rate will be rejected, thus
entitling such Existing Securityholder to continue to hold the aggregate
principal amount of Securities subject to such Submitted Bid, unless the
aggregate principal amount of Securities subject to such Submitted Bids will be
greater than the principal amount of Securities (the "remaining principal
amount") equal to the excess of the Available Securities over the aggregate
principal amount of Securities subject to Submitted Bids described in
subparagraphs (b) and (c) above, in which event such Submitted Bid of such
Existing Securityholder will be rejected in part and such Existing
Securityholder will be entitled to continue to hold the principal amount of
Securities subject to such Submitted Bid, but only in an amount equal to the
aggregate principal amount of Securities obtained by multiplying the remaining
principal amount by a fraction, the numerator of which will be the principal
amount of Securities held by such Existing Securityholder subject to such
Submitted Bid and the denominator of which will be the sum of the principal
amount of Securities subject to such Submitted Bids made by all such Existing
Securityholders that specified a rate equal to the Security Interest Rate; and
(e) Each Potential Securityholder's Submitted Bid specifying a
rate that is equal to the Security Interest Rate will be accepted, but only in
an amount equal to the principal amount of Securities obtained by multiplying
the excess of the aggregate principal amount of Available Securities over the
aggregate principal amount of Securities subject to Submitted Bids described in
subparagraphs (b), (c) and (d) above by a fraction, the numerator of which will
be the aggregate principal amount of Securities subject to such Submitted Bid
and the denominator of which will be the sum of the principal amount of
Securities subject to Submitted Bids made by all such Potential Securityholders
that specified a rate equal to the Security Interest Rate.
Insufficient Bids. If Sufficient Bids have not been made with respect
to a Security (other than because all of the Securities of such Class are
subject to Submitted Hold Orders) or if the Net Loan Rate is less than the Bid
Auction Rate (in which case the Security Interest Rate shall be the Net Loan
Rate) or if the Security Interest Rate Limitation applies, subject to the
denomination requirements described below, Submitted Orders will be accepted or
rejected as follows in the following order of priority and all other Submitted
Bids will be rejected:
(a) Existing Securityholders' Submitted Bids specifying any
rate that is equal to or lower than the Security Interest Rate will be rejected,
thus entitling such Existing Securityholders to continue to hold the aggregate
principal amount of Securities subject to such Submitted Bids;
(b) Potential Securityholders' Submitted Bids specifying any
rate that is equal to or lower than the Security Interest Rate will be accepted,
and specifying any rate that is higher than the Security Interest Rate will be
rejected; and
(c) each Existing Securityholder's Submitted Bid specifying any
rate that is higher than the Security Interest Rate and the Submitted Sell Order
of each Existing Securityholder will be accepted, thus entitling each Existing
Securityholder that submitted any such Submitted Bid or Submitted Sell Order to
sell the Securities subject to such Submitted Bid or Submitted Sell Order, but
in both cases only in an amount equal to the aggregate principal amount of
Securities obtained by multiplying the aggregate principal amount of Securities
subject to Submitted Bids described in subparagraph (b) above by a fraction, the
numerator of which will be the aggregate principal amount of Securities held by
such Existing Securityholder subject to such Submitted Bid or Submitted Sell
Order and the denominator of which will be the aggregate principal amount of
Securities subject to all such Submitted Bids and Submitted Sell Orders.
All Hold Orders. If all Securities of a Class are subject to Submitted
Hold Orders, all Submitted Bids will be rejected.
Authorized Denominations Requirement. If, as a result of the
procedures described above regarding Sufficient Bids and Insufficient Bids, any
Existing Securityholder would be entitled or required to sell, or any Potential
Securityholder would be entitled or required to purchase, a principal amount of
Securities that is not equal to an Authorized Denomination or an integral
multiple thereof, the Auction Agent will, in such manner as in its sole
discretion it will determine, round up or down the principal amount of
Securities to be purchased or sold by any Existing Securityholder or Potential
Securityholder so that the principal amount of Securities purchased or sold by
each Existing Securityholder or Potential Securityholder will be equal to an
Authorized Denomination or an integral multiple in excess thereof. If, as a
result of the procedures described above regarding Insufficient Bids, any
Potential Securityholder would be entitled or required to purchase less than a
principal amount of Securities equal to an Authorized Denomination or any
integral multiple thereof, the Auction Agent will, in such manner as in its sole
discretion it will determine, allocate Securities for purchase among Potential
Securityholders so that only Securities in an Authorized Denomination or any
integral multiples in excess thereof are purchased by any Potential
Securityholder, even if such allocation results in one or more of such Potential
Securityholders not purchasing any Securities.
Based on the results of each Auction, the Auction Agent is to
determine the aggregate principal amount of Securities of each Class to be
purchased and the aggregate principal amount of Securities of each Class to be
sold by Potential Securityholders and Existing Securityholders on whose behalf
each Broker-Dealer submitted Bids or Sell Orders and, with respect to each
Broker-Dealer, to the extent that such aggregate principal amount of Securities
to be sold differs from such aggregate principal amount of Securities to be
purchased, determine to which other Broker-Dealer or Broker-Dealers acting for
one or more purchasers such Broker-Dealer will deliver, or from which
Broker-Dealers acting for one or more sellers such Broker-Dealer will receive,
as the case may be, Securities.
Any calculation by the Auction Agent (or the Trustee, if applicable)
of the Security Interest Rate, One-Month LIBOR, Three-Month LIBOR, the Maximum
Auction Rate, the All Hold Rate, the Net Loan Rate and the Non-Payment Rate
will, in the absence of manifest error, be binding on all other parties.
Notwithstanding anything in any related Agreement or, a related Terms
Supplement to the contrary, no Auction is to be held on any Auction Date on
which there are insufficient moneys held by the Trustee under the related
Agreement and available to pay the principal of and interest due on the
applicable Security on the Note Remittance Date or Certificate Remittance Date
immediately following such Auction Date.
Settlement Procedures
The Auction Agent is required to advise each Broker-Dealer that
submitted an Order in an Auction of the Security Interest Rate for a Security
for the next Interest Period and, if such Order was a Bid or Sell Order, whether
such Bid or Sell Order was accepted or rejected, in whole or in part, by
telephone not later than 3:00 p.m., eastern time, on the Auction Date if the
Interest Rate is the Auction Rate and not later than 4:00 p.m. eastern time on
the Auction Date if the Interest Rate is the Net Loan Rate. Each Broker-Dealer
that submitted an Order on behalf of a Bidder is required to then advise such
Bidder of the applicable Security Interest Rate for the next Interest Period
and, if such Order was a Bid or a Sell Order, whether such Bid or Sell Order was
accepted or rejected, in whole or in part, confirm purchases and sales with each
Bidder purchasing or selling Securities as a result of the Auction and advise
each Bidder purchasing or selling Securities as a result of the Auction to give
instructions to its Participant to pay the purchase price against delivery of
such Securities or to deliver such Securities against payment therefor, as
appropriate. Pursuant to the Auction Agent Agreement, the Auction Agent is to
record each transfer of Securities on the Existing Securityholders Registry to
be maintained by the Auction Agent.
In accordance with DTC's normal procedures, on the Business Day after
the Auction Date, the transactions described above will be executed through DTC,
so long as DTC is the depository, and the accounts of the respective
Participants at DTC will be debited and credited and Securities delivered as
necessary to effect the purchases and sales of Securities as determined in the
Auction. Purchasers are required to make payment through their Participants in
same-day funds to DTC against delivery through their Participants. DTC will make
payment in accordance with its normal procedures, which now provide for payment
against delivery by its Participants in immediately available funds.
If any Existing Securityholder selling Securities in an Auction fails
to deliver such Securities, the Broker-Dealer of any person that was to have
purchased Securities in such Auction may deliver to such person a principal
amount of Securities that is less than the principal amount of Securities that
otherwise was to be purchased by such person but in any event equal to an
Authorized Denomination or any integral multiple thereof. In such event, the
principal amount of Securities to be delivered will be determined by such
Broker-Dealer. Delivery of such lesser principal amount of Securities will
constitute good delivery. Neither the Trustee nor the Auction Agent will have
any responsibility or liability with respect to the failure of a Potential
Securityholder, Existing Securityholder or their respective Broker-Dealer or
Participant to deliver the principal amount of Securities or to pay for the
Securities purchased or sold pursuant to an Auction or otherwise. For a further
description of the settlement procedures, see "SETTLEMENT PROCEDURES."
TRUSTEE NOT RESPONSIBLE FOR AUCTION AGENT, MARKET AGENT AND BROKER-DEALERS
The Trustee shall not be liable or responsible for the actions of or
failure to act by the Auction Agent, Market Agent or any Broker-Dealer under the
related Agreement, the related Terms Supplement or under the Auction Agent
Agreement, the Market Agent Agreement or any Broker-Dealer Agreement. The
Trustee may conclusively rely upon any information required to be furnished by
the Auction Agent, the Market Agent or any Broker-Dealer without undertaking any
independent review or investigation of the truth or accuracy of such
information.
CHANGES IN AUCTION TERMS
Changes in Auction Period or Periods
While any of the Securities are outstanding, the Administrator, may,
from time to time, change the length of the one or more Auction Periods in order
to conform with then current market practice with respect to similar securities
or to accommodate economic and financial factors that may affect or be relevant
to the length of the Auction Period and the interest rate borne by the
Securities (an "Auction Period Adjustment"). The Administrator will not initiate
such change in the length of the Auction Period unless it shall have received
the written consent from the Market Agent, which consent will not be
unreasonably withheld, not less than three days nor more than 20 days prior to
the effective date of an Auction Period Adjustment. The Administrator will
initiate an Auction Period Adjustment by giving written notice to the Trustee,
the Auction Agent, the Market Agent, the Security Guaranty Insurer and DTC in
substantially the form of, or containing substantially the information contained
in, the related Agreement at least 10 days prior to the Auction Date for such
Auction Period.
Any such Auction Period Adjustment shall not result in an Auction
Period of less than 7 days nor more than 91 days. If any such Auction Period
Adjustment will result in an Auction Period of less than the number of days in
the then current Auction Period, the notice described above will be effective
only if it is accompanied by a written statement of the Trustee, the Auction
Agent and DTC to the effect that they are capable of performing their duties, if
any, under the related Agreement, the Auction Agent Agreement and any
Broker-Dealer Agreement with respect to such changed Auction Period.
An Auction Period Adjustment will take effect only if (A) the Trustee
and the Auction Agent receive, by 11:00 a.m., eastern time, on the Business Day
before the Auction Date for the first such Auction Period, a certificate from
the Representative authorizing an Auction Period Adjustment specified in such
certificate, the certificate of the Market Agent described above and the written
statement of the Trustee, the Auction Agent DTC described above and (B)
Sufficient Bids exist at the Auction on the Auction Date for such first Auction
Period. If the condition referred to in (A) is not met, the Security Interest
Rate applicable for the next Auction Period will be determined pursuant to the
Auction Procedures and the Auction Period will be the Auction Period determined
without reference to the proposed change. If the condition referred to in (A) is
met, but the condition referred to in (B) above is not met, the Security
Interest Rate applicable for the next Auction Period will be the lesser of the
Maximum Auction Rate and the Net Loan Rate and the Auction Period will be the
Auction Period determined without reference to the proposed change.
Changes in the Auction Date
The Market Agent, at the written direction of the Representative, may
specify an earlier Auction Date (but in no event more than five Business Days
earlier) than the Auction Date that would otherwise be determined in accordance
with the definition of "Auction Date" with respect to one or more specified
Auction Periods in order to conform with then current market practice with
respect to similar securities or to accommodate economic and financial factors
that may affect or be relevant to the day of the week constituting an Auction
Date and the interest rate borne on the Securities. The Representative will not
consent to such change in the Auction Date unless the Representative will have
received from the Market Agent not less than three days nor more than 20 days
prior to the effective date of such change a written request for consent
together with a certificate demonstrating the need for change in reliance on
such factors. The Market Agent will provide notice of its determination to
specify an earlier Auction Date for one or more Auction Periods by means of a
written notice delivered at least 10 days prior to the proposed changed Auction
Date to the Trustee, the Auction Agent, the Trust, the Representative, and DTC.
The changes in Auction terms described above may be made with respect
to any Class of the Securities. In connection with any change in Auction Terms
described above, the Auction Agent is to provide such further notice to such
parties as is specified in the Auction Agent Agreement.
<PAGE>
APPENDIX II
SETTLEMENT PROCEDURES
These Settlement Procedures apply separately to each Class of Securities and may
be different if specified in the related Prospectus Supplement.
(e) Not later than (i) 3:00 p.m. if the Security Interest Rate is the
Auction Rate or (2) 4:00 p.m. if the Security Interest Rate is the Net Loan
Rate, the Auction Agent is to notify by telephone each Broker-Dealer that
participated in the Auction held on such Auction Date and submitted an Order on
behalf of an Existing Securityholder or Potential Securityholder of:
(i) the Security Interest Rate fixed for the next Interest
Period;
(ii) whether there were Sufficient Bids in such Auction;
(iii) if such Broker-Dealer (a "Seller's Broker-Dealer")
submitted Bids or Sell Orders on behalf of an Existing Securityholder,
whether such Bid or Sell Order was accepted or rejected, in whole or
in part, and the principal amount of Securities, if any, to be sold by
such Existing Securityholder;
(iv) if such Broker-Dealer (a "Buyer's Broker-Dealer")
submitted a Bid on behalf of a Potential Securityholder, whether such
Bid was accepted or rejected, in whole or in part, and the principal
amount of Securities, if any, to be purchased by such Potential
Securityholder;
(v) if the aggregate amount of Securities to be sold by all
Existing Securityholders on whose behalf such Seller's Broker -Dealer
submitted Bids or Sell Orders exceeds the aggregate principal amount
of Securities to be purchased by all Potential Securityholders on
whose behalf such Buyer's Broker-Dealer submitted a Bid, the name or
names of one or more Buyer's Broker-Dealers and the name of the
Participant, if any, of each such Buyer's Broker-Dealer (a
"Participant") acting for one or more purchasers of such excess
principal amount of Securities and the principal amount of Securities
to be purchased from one or more Existing Securityholders on whose
behalf such Seller's Broker-Dealer acted by one or more Potential
Securityholders on whose behalf each of such Buyer's Broker-Dealers
acted;
(vi) if the principal amount of Securities to be purchased
by all Potential Securityholders on whose behalf such Buyer's
Broker-Dealer submitted a Bid exceeds the amount of Securities to be
sold by all Existing Securityholders on whose behalf such Seller's
Broker-Dealer submitted a Bid or a Sell Order, the name or names of
one or more Seller's Broker-Dealers (and the name of the Participant,
if any, of each such Seller's Broker-Dealer) acting for one or more
sellers of such excess principal amount of Securities and the
principal amount of Securities to be sold to one or more Potential
Securityholders on whose behalf such Buyer's Broker-Dealer acted by
one or more Existing Securityholder on whose behalf each of such
Seller's Broker-Dealers acted; and
(vii) the Auction Date for the next succeeding Auction.
(f) On each Auction Date, each Broker-Dealer that submitted an Order
on behalf of any Existing Securityholder or Potential Securityholder is to:
(i) advise each Existing Securityholder and Potential
Securityholder on whose behalf such Broker- Dealer submitted a Bid or
Sell Order in the Auction on such Auction Date whether such Bid or
Sell Order was accepted or rejected, in whole or in part;
(ii) in the case of a Broker-Dealer that is a Buyer's
Broker-Dealer, advise each Potential Securityholder on whose behalf
such Buyer's Broker-Dealer submitted a Bid that was accepted, in whole
or in part, to instruct such Potential Securityholder's Participant to
pay to such Buyer's Broker-Dealer (or its Participant) through DTC the
amount necessary to purchase the principal amount of the Securities to
be purchased pursuant to such Bid against receipt of such Securities
together with accrued interest;
(iii) in the case of a Broker-Dealer that is a Seller's
Broker-Dealer, instruct each Existing Securityholder on whose behalf
such Seller's Broker-Dealer submitted a Sell Order that was accepted,
in whole or in part, or a Bid that was accepted, in whole or in part,
to instruct such Existing Securityholder's Participant to deliver to
such Seller's Broker-Dealer (or its Participant) through DTC the
principal amount of the Securities to be sold pursuant to such Order
against payment therefor;
(iv) advise each Existing Securityholder on whose behalf
such Broker-Dealer submitted an Order and each Potential
Securityholder on whose behalf such Broker-Dealer submitted a Bid of
the Security Interest Rate for the next Interest Period;
(v) advise each Existing Securityholder on whose behalf such
Broker-Dealer submitted an Order of the next Auction Date; and
(vi) advise each Potential Securityholder on whose behalf
such Broker-Dealer submitted a Bid that was accepted, in whole or in
part, of the next Auction Date.
(g) On the basis of the information provided to it pursuant to
paragraph (a) above, each Broker-Dealer that submitted a Bid or Sell Order in an
Auction is required to allocate any funds received by it in connection with such
Auction pursuant to paragraph (b)(ii) above, and any Securities received by it
in connection with such Auction pursuant to paragraph (b)(iii) above, among the
Potential Securityholders, if any, on whose behalf such Broker-Dealer submitted
Bids, the Existing Securityholder, if any, on whose behalf such Broker-Dealer
submitted Bids or Sell Orders in such Auction, and any Broker-Dealers identified
to it by the Auction Agent following such Auction pursuant to paragraph (a)(v)
or (a)(vi) above.
(h) On each Auction Date:
(i) each Potential Securityholder and Existing
Securityholder with an Order in the Auction on such Auction Date will
instruct its Participant as provided in (b)(ii) or (b)(iii) above, as
the case may be:
(ii) each Seller's Broker-Dealer that is not a Participant
in DTC's system will instruct its Participant to deliver such
Securities through DTC to a Buyer's Broker-Dealer (or its Participant)
identified to such Seller's Broker-Dealer pursuant to (a)(v) above
against payment therefor; and
(iii) each Buyer's Broker-Dealer that is not a Participant
in DTC's system will instruct its Participant to pay through DTC to
Seller's Broker-Dealer (or its Participant) identified following such
Auction pursuant to (a)(vi) above the amount necessary to purchase the
Securities to be purchased pursuant to (b)(ii) above against receipt
of such Securities.
(i) On the Business Day following each Auction Date;
(i) each Participant for a Bidder in the Auction on such
Auction Date referred to in (d)(i) above will instruct DTC to execute
the transactions described under (b)(ii) or (b)(iii) above for such
Auction, and DTC will execute such transactions;
(ii) each Seller's Broker-Dealer or its Participant will
instruct DTC to execute the transactions described in (d)(ii) above
for such Auction, and DTC will execute such transactions; and
(iii) each Buyer's Broker-Dealer or its Participant will
instruct DTC to execute the transactions described in (d)(iii) above
for such Auction, and DTC will execute such transactions.
(j) If an Existing Securityholder selling Securities in an Auction
fails to deliver such Securities (by authorized book-entry), a Broker-Dealer may
deliver to the Potential Securityholder on behalf of which it submitted a Bid
that was accepted a principal amount of Securities that is less than the
principal amount of Securities that otherwise was to be purchased by such
Potential Securityholder. In such event, the principal amount of Securities to
be so delivered will be determined solely by such Broker-Dealer (but only in
Authorized Denominations). Delivery of such lesser principal amount of
Securities will constitute good delivery. Notwithstanding the foregoing terms of
this paragraph (f), any delivery or nondelivery of Securities which will
represent any departure from the results of an Auction, as determined by the
Auction Agent, will be of no effect unless and until the Auction Agent will have
been notified of such delivery or nondelivery in accordance with the provisions
of the Auction Agent Agreement and the Broker-Dealer Agreements. Neither the
Trustee nor the Auction Agent will have any responsibility or liability with
respect to the failure of a Potential Securityholder, Existing Securityholder or
their Respective Broker-Dealer or Participant to take delivery of or deliver, as
the case may be, the principal amount of the Securities purchased or sold
pursuant to an Auction or otherwise.
<PAGE>
NO DEALER, SALESMAN OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE REPRESENTATIVE OR THE UNDERWRITER. THIS PROSPECTUS SUPPLEMENT
AND THE ACCOMPANYING PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES OFFERED
HEREBY NOR AN OFFER OF SUCH SECURITIES TO ANY PERSON IN ANY STATE OR OTHER
JURISDICTION IN WHICH SUCH OFFER WOULD BE UNLAWFUL. THE DELIVERY OF THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS AT ANY TIME DOES NOT IMPLY
THAT INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
PAGE
Summary of Terms................................................. S- 4
Risk Factors..................................................... S-39
Lending Programs................................................. S-41
The Representative and the Originators........................... S-45
The Loans Pools.................................................. S-48
Maturity, Prepayment and Yield Considerations.................... S-53
Description of the Securities.................................... S-62
The Guaranty Insurance Policies and the Guaranty Insurer......... S-70
The Agreement ................................................... S-72
Federal Income Tax Considerations................................ S-81
ERISA Considerations............................................. S-81
Legal Investment Considerations.................................. S-84
Underwriting..................................................... S-84
Experts.......................................................... S-85
Legal Matters.................................................... S-85
Rating of the Securities......................................... S-85
Financial Information ........................................... S-85
Index of Principal Terms......................................... S-86
(Back cover continued
on next page)
<PAGE>
PROSPECTUS
Prospectus Supplement ............................................ 4
Available Information ............................................ 4
Reports to Securityholders........................................ 5
Incorporation of Certain Documents by Reference................... 5
Summary of Terms ................................................. 6
Risk Factors...................................................... 23
The Trusts........................................................ 28
Use of Proceeds .................................................. 42
The Representative and the Originators............................ 42
The Single Family Loan Lending Program............................ 42
Description of the Securities..................................... 47
Credit Enhancement ............................................... 54
Maturity, Prepayment and Yield Considerations .................... 59
The Agreements ................................................... 61
Certain Legal Aspects of the
Mortgage Loans ................................................. 72
Federal Income Tax Consequences .................................. 81
ERISA Considerations ............................................. 107
Legal Investment Considerations .................................. 109
Plan of Distribution ............................................. 109
Legal Matters .................................................... 109
Experts........................................................... 110
Financial Information............................................. 110
Rating............................................................ 110
Index of Principal Terms.......................................... 111
Appendix I - Auction Procedures................................... I-1
Appendix II - Settlement Procedures............................... II-1
(Back cover continued
on next page)
<PAGE>
$--------------
(APPROXIMATE)
THE MONEY STORE INC.
(REPRESENTATIVE)
THE MONEY STORE ASSET BACKED CERTIFICATES
THE MONEY STORE ASSET BACKED NOTES
(ISSUABLE IN SERIES)
PROSPECTUS SUPPLEMENT
SUBJECT TO COMPLETION, DATED SEPTEMBER 9, 1997.
PROSPECTUS SUPPLEMENT
(To Prospectus dated ____________, 199_)
THE MONEY STORE SBA LOAN TRUST 1997--___
$______________ Class A Certificates
$______________ Class B Certificates
(Approximate)
THE MONEY STORE SBA LOAN-BACKED ADJUSTABLE RATE
CERTIFICATES, SERIES 1997-___,
(EXCEPT FOR THE EXCESS SPREAD (AS DEFINED HEREIN), WHICH CONSTITUTES PART OF THE
TRUST FUND, THE UNITED STATES SMALL BUSINESS ADMINISTRATION (THE "SBA") NEITHER
GUARANTEES THE CERTIFICATES OFFERED HEREBY, THE BENEFICIAL OWNERSHIP INTEREST IN
THE TRUST FUND REPRESENTED THEREBY OR THE UNGUARANTEED INTEREST IN THE SBA LOANS
THAT CONSTITUTE THE ASSETS OF SUCH TRUST FUND NOR DOES THE SBA HAVE ANY DIRECT
OR INDIRECT OBLIGATION TO THE TRUST FUND OR THE CERTIFICATEHOLDERS).
THE MONEY STORE INVESTMENT CORPORATION
THE MONEY STORE COMMERCIAL MORTGAGE INC.
AND
THE MONEY STORE OF NEW YORK, INC.,
Sellers
The Money Store SBA Loan-Backed Adjustable Rate Certificates, Series 199_-_ (the
"Certificates"), evidence the entire beneficial ownership interest in a trust
fund (the "Trust Fund") created by The Money Store Investment Corporation
("TMSIC"), The Money Store Commercial Mortgage Inc. ("TMSCMI") and The Money
Store of New York, Inc. ("MSNY" and, together with TMSIC and TMSCMI, the
"Sellers"). The Trust Fund consists primarily of the right to receive payments
and other recoveries attributable to certain unguaranteed interests (the
"Unguaranteed Interests") in a pool of loans partially guaranteed by the U.S.
Small Business Administration and, as described herein, may also include certain
loans originated in connection with such loans (collectively, the "SBA Loans").
See "The SBA Loan Program -- Loan Parameters" herein. The Certificates will be
issued pursuant to a Pooling and Servicing Agreement, among the Sellers, TMSIC,
as servicer (in such capacity, the "Servicer"), The Money Store Inc., as
Representative (the "Representative") and [Name of Trustee], as trustee. (cover
continued on next page)
SEE "RISK FACTORS" ON PAGE S-22 HEREIN AND ON PAGE 20 IN THE PROSPECTUS FOR
A DISCUSSION OF CERTAIN MATERIAL FACTORS WHICH SHOULD BE CONSIDERED IN
CONNECTION WITH AN INVESTMENT IN THE CERTIFICATES OFFERED HEREBY.
THE CERTIFICATES REPRESENT INTERESTS IN THE TRUST FUND ONLY AND DO NOT
REPRESENT INTERESTS IN OR OBLIGATIONS OF TMSIC, TMSCMI, MSNY OR ANY OF THEIR
RESPECTIVE AFFILIATES OR SUBSIDIARIES [, EXCEPT FOR THE GUARANTY OF THE
REPRESENTATIVE AS PROVIDED HEREIN]. EXCEPT FOR THE EXCESS SPREAD, NEITHER THE
CERTIFICATES NOR THE UNDERLYING UNGUARANTEED INTERESTS OF THE SBA LOANS ARE
INSURED OR GUARANTEED BY THE UNITED STATES SMALL BUSINESS ADMINISTRATION OR ANY
OTHER GOVERNMENTAL AGENCY, AND NO GOVERNMENTAL AGENCY HAS PASSED UPON THE
ACCURACY OF THE INFORMATION CONTAINED IN THIS PROSPECTUS SUPPLEMENT OR THE
ACCOMPANYING PROSPECTUS.
--------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT
OR THE ACCOMPANYING PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
The Underwriter has agreed to purchase the Class A and Class B Certificates
from the Sellers at _____% of the principal amounts thereof, subject to the
terms and conditions set forth in the Underwriting Agreement referred to herein
under "Underwriting". Aggregate proceeds to the Sellers from the sale of the
Certificates offered hereby (before deducting expenses payable by the Sellers
estimated at $_______) will be approximately $___________.
The Underwriter proposes to offer the Certificates from time to time for
sale in negotiated transactions or otherwise, at prices determined at the time
of sale. For further information with respect to the plan of distribution and
any discounts, commissions or profits that may be deemed underwriting discounts
or commissions, see "Underwriting".
The Certificates are offered by the Underwriter subject to prior sale,
when, as and if issued to and accepted by the Underwriter, subject to approval
of certain legal matters by counsel for the Underwriter. The Underwriter
reserves the right to withdraw, cancel or modify such offer and to reject orders
in whole or in part. It is expected that delivery of the Class A Certificates
will be made in book-entry form only through the Same Day Funds Settlement
System of The Depository Trust Company in the United States, or CEDEL, societe
anonyme ("CEDEL") or the Euroclear System ("Euroclear") in Europe, and that
delivery of the Class B Certificates will be made, at the option of the Sellers,
either (i) in book-entry form only through the Same Day Funds Settlement System
of The Depository Trust Company or (ii) in physical form, at the office of [Name
and address of underwriter], in each case on or about __________, 199_.
[NAME OF UNDERWRITER]
__________, 199_
(cover continued from previous page)
Additional SBA Loans (the "Subsequent SBA Loans") may be purchased by the
Trust from the Sellers from time to time on or before the close of business on
____________, 199_ from funds, if any, on deposit in the Pre-Funding Account. As
described herein, any Subsequent SBA Loans acquired by the Trust will be either
(i) SBA ss. 7(a) Loans or (ii) Section 7(a) Companion Loans and SBA 504 Loans,
each as defined herein. See "The SBA Loan Pool--General." On the Closing Date
(as defined herein), an aggregate cash amount not to exceed approximately
$_________ may be deposited into the Pre-Funding Account.
Each SBA Loan was, and each Subsequent SBA Loan will have been, originated
or acquired by the Sellers in accordance with the Sellers' underwriting criteria
described in the attached Prospectus under "The SBA Loan Lending Program --
Underwriting Criteria for SBA ss. 7(a) Loans." The SBA Loans will be master
serviced by the Servicer, although MSNY will service the SBA Loans sold by it to
the Trust Fund and TMSIC will service the SBA Loans sold by it and TMSCMI to the
Trust Fund.
The Certificates will consist of two classes of certificates (the "Class A
Certificates" and the "Class B Certificates"). The Class B Certificates are
subordinate to the Class A Certificates in the right to receive payment of
interest and, after interest has been paid with respect to both Classes of
Certificates, the Class B Certificates are subordinate to the Class A
Certificates in the right to receive payments of principal. See "Description of
the Agreement and the Certificates--Flow of Funds" herein.
Distributions of principal and interest on the Certificates will be made on
the 15th day of each month or, if the 15th day is not a business day, the first
business day thereafter, commencing __________, 199_. To the extent of Available
Funds (as defined herein), and prior to payments of principal on the
Certificates, holders of Class A and Class B Certificates, in that order, will
be entitled to receive interest accrued at an adjustable rate, as described
herein. To the extent of the Available Funds remaining after payment of interest
on the Certificates, holders of Class A and Class B Certificates, in that order,
will be entitled to receive distributions of principal, as described herein. See
"Description of the Agreement and the Certificates -- Flow of Funds" herein.
Additionally, any Pre- Funded Amount (as defined herein) remaining in the
Pre-Funding Account at the close of business on ____________, 199_ will be
distributed as a principal payment on ____________, 199_ (together with __ days'
accrued interest at the applicable Remittance Rate on the amount of such
prepayment) to the Class A and Class B Certificates. The interest due the
Certificates on the _______ 199_ Remittance Date will be adjusted to take
account of such distribution.
There is currently no secondary market for the Certificates. [Name of
Underwriter] (the "Underwriter") intends to make a secondary market for the
Certificates, but has no obligation to do so. There can be no assurance that a
secondary market for the Certificates will develop or, if one does develop, that
it will continue.
No election will be made to treat the Trust Fund as a real estate mortgage
investment conduit. See "Federal Income Tax Consequences" herein.
The Certificates offered by this Prospectus Supplement constitute a
separate series of Certificates being offered by the Sellers and the
Representative pursuant to the Prospectus dated ____________, 199_ (the
"Prospectus"), of which this Prospectus Supplement is a part and which
accompanies this Prospectus Supplement. The Prospectus contains important
information regarding this offering which is not contained herein and
prospective investors are urged to read the Prospectus and this Prospectus
Supplement in full.
-----------------------
UNTIL 90 DAYS AFTER THE DATE HEREOF, ALL DEALERS EFFECTING TRANSACTIONS
IN THE CERTIFICATES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION,
MAY BE REQUIRED TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS. THIS
IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
SUPPLEMENT AND PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT
TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
-----------------------
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON
OR ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO
THE CONTRARY IS UNLAWFUL.
-----------------------
[CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
WHICH STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE SECURITIES
OFFERED HEREBY, INCLUDING OVER-ALLOTMENT, STABILIZING TRANSACTIONS AND
SYNDICATE COVERING TRANSACTIONS. FOR A DETAILED DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."]
[INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY STATE.]
SUMMARY OF TERMS
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus Supplement and the
accompanying Prospectus. Capitalized terms used but not defined elsewhere in
this Prospectus Supplement have the meanings assigned to such terms under
"Certain Definitions". Unless otherwise noted, all statistical percentages and
all dollar amounts in this Prospectus Supplement are measured by the aggregate
principal balances of the SBA Loans, the Unguaranteed Interests or the
Guaranteed Interests (each as defined below under "--Trust Fund Assets"), as the
case may be, at the close of business on the Cut-Off Date (as defined below
under "--Trust Fund Assets").
Securities Offered..................... The Money Store SBA Loan-Backed
Adjustable Rate Certificates, Series
1997-___, Class A and Class B (the
"Class A Certificates" and the "Class B
Certificates", respectively, and
collectively, the "Certificates"). The
Class A Certificates will be issued in
an aggregate initial principal amount
(the "Initial Class A Certificate
Principal Amount") of approximately
$______________. The Class B
Certificates will be issued in an
aggregate initial principal amount (the
"Initial Class B Certificate Principal
Amount") of approximately $____________.
The Class B Certificates are subordinate
to the Class A Certificates in the right
to receive payments of interest and,
after interest has been paid to both
Classes of Certificates, the Class B
Certificates are subordinate to the
Class A Certificates in the right to
receive payments of principal, in each
case to the extent described herein. See
"Description of the Agreement and the
Certificates-- Flow of Funds" herein.
The Certificates represent the entire
beneficial ownership interest in a trust
fund (the "Trust Fund") formed pursuant
to a Pooling and Servicing Agreement
(the "Agreement") by and among The Money
Store Investment Corporation ("TMSIC"),
The Money Store Commercial Mortgage Inc.
("TMSCMI"), The Money Store of New York,
Inc. ("MSNY" and together with TMSIC and
TMSCMI, the "Sellers"), TMSIC, as
servicer (in such capacity, the
"Servicer"), The Money Store Inc., as
representative (the "Representative"),
and [Name of Trustee], as trustee (the
"Trustee").
Denominations........................ The Class A Certificates will be issued
in book-entry form and the Class B
Certificates will be issued either in
book-entry or physical form, as
determined by the Sellers prior to
issuance of the Certificates. Each Class
of Certificates will be issued in
minimum denominations of $1,000 original
principal amount and integral multiples
of $1,000 in excess thereof, except that
one Certificate of each Class may be
issued in a different denomination and,
if so issued, will be held in physical
form. See "Description of the Agreement
and the Certificates-- Registration of
Certificates" herein.
Trust Fund Assets................... The Trust Fund will consist primarily of
the right to receive all payments and
other recoveries attributable to the
Unguaranteed Interests (as defined
below) in a pool of loans (the "SBA Loan
Pool") made to small business concerns
pursuant to Section 7(a) of the Small
Business Act, as amended, and Title 13
of the Code of Federal Regulations, as
amended (the "SBA ss. 7(a) Loans"). The
SBA Loan Pool also may consist of loans
made to small businesses in connection
with the origination of an SBA ss. 7(a)
Loan, which related SBA ss.7(a) Loan may
or may not be part of the Trust Fund
(the "Section 7(a) Companion Loans") and
pursuant to the SBA 504 Loan Program
described herein (the "SBA 504 Loans").
The SBA ss. 7(a) Loans, the Section 7(a)
Companion Loans and the SBA 504 Loans
are referred to herein collectively as
the "SBA Loans". The SBA ss. 7(a) Loans
are partially guaranteed by the U.S.
Small Business Administration (the
"SBA") pursuant to a Small Business
Administration Loan Guaranty Agreement
(Deferred Participation) (SBA Form 750),
dated August 13, 1980, by and between
TMSIC and the SBA, and pertinent SBA
regulations found at 13 C.F.R. Part 120.
None of the Section 7(a) Companion Loans
or the SBA 504 Loans are guaranteed by
the SBA.
The Sellers reserve the right to include
in the Trust Fund an aggregate principal
amount of up to approximately $_________
of Section 7(a) Companion Loans and SBA
504 Loans. Section 7(a) Companion Loans
and SBA 504 Loans, if any, will have the
characteristics described herein under
"The SBA Loan Pool--Section 7(a)
Companion Loans and SBA 504 Loans." If
Section 7(a) Companion Loans and SBA 504
Loans are not included in the Trust Fund
on the Closing Date, an amount equal to
approximately $__________ will be
deposited into the Pre-Funding Account.
Amounts in the Pre-Funding Account will
be used to purchase either Section 7(a)
Companion Loans and SBA 504 Loans or SBA
ss. 7(a) Loans similar to the SBA ss.
7(a) Loans delivered on the Closing
Date.
As to any SBA ss. 7(a) Loan, the right
to receive the guaranteed portion of the
principal balance thereof together with
interest thereon at a per annum rate in
effect from time to time (which rate is
less than the rate paid by the obligor
on the related SBA ss. 7(a) Loan (the
"Obligor")) and the fee (the "Agent of
the SBA's Fee") payable to the SBA's
fiscal and transfer agent (the "Agent of
the SBA") is referred to herein as the
"Guaranteed Interest". With respect to
SBA ss. 7(a) Loans for which the
Guaranteed Interest was sold in the
secondary market on or after September
1, 1993 (unless the related SBA ss.7(a)
Loan was approved by the SBA on or after
October 12, 1995) and SBA ss.7(a) Loans
approved by the SBA on or after October
12, 1995 regardless of whether they were
sold in the secondary market (the
"Additional Fee SBA Loans"), a fee equal
to 40 basis points and 50 basis points,
respectively, per annum on the
outstanding balance of the Guaranteed
Interest of such Additional Fee SBA
Loans (the "Additional Fee") is required
to be paid by the related Seller to the
SBA. Although such Additional Fee is the
responsibility of the related Seller,
the Additional Fee will be funded from
the interest received by the related
Obligor on the SBA ss. 7(a) Loans.
Accordingly, any such Additional Fee
will reduce the Excess Spread (as
defined herein) on the related SBA Loan.
The Guaranteed Interest varies from SBA
ss. 7(a) Loan to SBA ss. 7(a) Loan, is
not included in the Trust Fund and
Certificateholders have no right or
interest therein. As described herein,
the portion of the principal guaranteed
by the SBA for each SBA ss. 7(a) Loan
varies depending upon the program under
which such SBA ss. 7(a) Loan was
originated. However, the SBA imposes a
maximum per borrower guaranty of
$750,000. See "The SBA Loan Program --
Section 7(a) Loan Parameters."
Pursuant to policies of the SBA, the
Servicer is required to retain for each
SBA ss. 7(a) Loan an amount equal to
0.60% per annum on the outstanding
balance of the related Guaranteed
Interest (such amount is referred to
herein as the "Premium Protection Fee"
for the related SBA ss. 7(a) Loan). The
Premium Protection Fee is not included
in the Trust Fund and Certificateholders
have no right or interest therein.
The "Unguaranteed Interest" will equal
(i) as to any SBA ss. 7(a) Loan, all
payments and other recoveries on such
SBA ss. 7(a) Loan not constituting the
Guaranteed Interest or Premium
Protection Fee therein and (ii) as to
any Section 7(a) Companion Loan or SBA
504 Loan, all payments and other
recoveries on such Section 7(a)
Companion Loan or SBA 504 Loan. As
stated above, the interest accrued on
the guaranteed portion of the principal
balance of each SBA ss. 7(a) Loan
exceeds the sum of the interest payable
to the holder of the Guaranteed
Interest, the Agent of the SBA's Fee,
the Premium Protection Fee and, with
respect to the Additional Fee SBA Loans,
the Additional Fee. Such excess (the
"Excess Spread"), which is guaranteed by
the SBA for up to 120 days of accrued
interest, is included in the
Unguaranteed Interest and will be
available to pay interest and principal
on the Certificates, the Servicing Fee
to the Servicer and fund the Spread
Account (as defined under "--Spread
Account" herein) as described under
"--Spread Account" herein.
The "Unguaranteed Percentage" will
equal, (i) as to any SBA ss. 7(a) Loan,
the fraction, expressed as a percentage,
the numerator of which is the principal
portion of the Unguaranteed Interest as
of the Cut-Off Date and the denominator
of which is the outstanding principal
balance of such SBA ss. 7(a) Loan as of
the Cut-Off Date and (ii) as to any
Section 7(a) Companion Loan or SBA 504
Loan, 100%. The Unguaranteed Percentage
for any given loan will not change over
time.
The "Cut-Off Date is _______, 199_;
provided, however, that for any SBA Loan
originated after such date, the CutOff
Date shall be the date of origination of
such SBA Loans.
As of the close of business on the
Cut-Off Date, the aggregate principal
amount of the Unguaranteed Interests of
the SBA ss. 7(a) Loans expected to be
delivered to the Trustee on the Closing
Date equaled approximately
$_______________ the "Original Pool
Principal Balance").
Sellers......................... TMSIC and TMSCMI are New Jersey
corporations, and MSNY is a New York
corporation. TMSIC and TMSCMI are
wholly-owned subsidiaries of The Money
Store Inc., a New Jersey corporation,
and MSNY is a wholly-owned subsidiary of
TMSIC. All of the SBA ss. 7(a) Loans
were, and all of the Subsequent SBA
Loans consisting of SBA ss. 7(a) Loans
will have been, originated or acquired
by TMSIC or MSNY. All of the Section
7(a) Companion Loans and SBA 504 Loans
will have been originated by TMSCMI.
Each Seller will deposit into the Trust
Fund the right to receive the
Unguaranteed Interests in the SBA Loans
originated or acquired by it and will
make representations and warranties with
respect to such SBA Loans.
Servicers........................ MSNY will service the SBA Loans sold by
it to the Trust Fund and TMSIC will
service the SBA Loans sold by it and
TMSCMI to the Trust Fund, in each case
in accordance with the terms of the
Agreement and, with respect to the
SBA ss. 7(a) Loans, the SBA Rules and
Regulations and the Multi-Party
Agreement (as defined below under
"--Multi-Party Agreement"). TMSIC will
be liable to the Trustee for the
servicing of all the SBA Loans.
Trustee........................... [_______________, a ________ company
headquartered in _____________] will be
the Trustee. In the Agreement, the
Trustee will agree to act as successor
Servicer if TMSIC can no longer serve in
such capacity.
Document Custodians............... The promissory notes evidencing the SBA
ss. 7(a) Loans (the "Notes") will be
held by the Agent of the SBA pursuant to
the Multi-Party Agreement. The Agent of
the SBA will be liable solely to the SBA
for the Agent of the SBA's gross
negligence or malfeasance. The SBA will
be liable to the Trustee, the Sellers
and the Servicer for the SBA's and the
Agent of the SBA's gross negligence or
malfeasance.
All other documents to be delivered by
the Sellers with respect to the SBA
Loans will be delivered to and held by
the Trustee pursuant to the Agreement.
See "Description of the Agreement and
the Certificates" herein.
Interest Accrual Period............. With respect to each Remittance Date (as
defined below under "--Remittance
Date"), the "Interest Accrual Period"
will be the period commencing on the
15th day of the month preceding such
Remittance Date and ending on the 14th
day of the month of such Remittance
Date. However, for the Remittance Date
occurring in ____________, 199_, the
Interest Accrual Period will be the
period commencing on the Closing Date
and ending on ____________, 199_.
Pre-Funding Account................. If Section 7(a) Companion Loans and SBA
504 Loans are not included in the Trust
Fund on the Closing Date, cash in an
amount not to exceed approximately
$_________ (the "Pre-Funded Amount")
will be deposited on the Closing Date
into an account (the "Pre-Funding
Account"). Amounts in the Pre-Funding
Account may be used only (i) to acquire
Subsequent SBA Loans and (ii) to make
accelerated payments of principal on the
Certificates. During the period (the
"Funding Period") from the Closing Date
until the earliest of (i) the date on
which the amount on deposit in the
Pre-Funding Account, is less than
$200,000, (ii) the date on which an
Event of Default occurs under the
Agreement or (iii) the close of business
on ____________, 199_, amounts will,
from time to time, be withdrawn from the
Pre-Funding Account to purchase
Subsequent SBA Loans in accordance with
the Agreement. Any Pre-Funded Amount
remaining at the end of the Funding
Period will be distributed as a
principal prepayment on the next
Remittance Date to the Certificates.
However, any Pre-Funded Amount
remaining at the close of business on
____________, 199_ will be distributed
as a principal prepayment on __________,
199_ (the "Special Remittance Date") to
the Certificates.
Capitalized Interest
Account......................... If the Pre-Funding Account is
established, on the Closing Date, the
Representative also will make a cash
deposit in an account (the "Capitalized
Interest Account") to be pledged to the
Trustee. The amount, if any, deposited
in the Capitalized Interest Account will
be used by the Trustee on the Remittance
Dates occurring in __________,
__________ and __________ 199_ to fund
the excess, if any, of (i) the amount of
interest accrued for each such
Remittance Date at the weighted average
Class A and Class B Remittance Rates on
the portion of the Certificates having
principal balances exceeding the
principal balances of the Unguaranteed
Interests over (ii) the amount of any
earnings on funds in the Pre-Funding
Account that are available to pay
interest on the Certificates on each
such Remittance Date. Additionally, if a
principal prepayment is made on the
Special Remittance Date to any Class of
Certificates, such Class of Certificates
also will receive on such date, from the
Capitalized Interest Account, an amount
equal to __ days' interest at the
applicable Remittance Rate on the amount
of such principal prepayment. Any
amounts remaining in the Capitalized
Interest Account on the Special
Remittance Date and not used for such
purposes are required to be paid
directly to the Representative on such
Special Remittance Date.
Available Funds................... With respect to each Remittance Date,
the "Available Funds" will equal the sum
of (i) all amounts (including any Excess
Spread) received from any source by the
Servicer or any Subservicer during the
preceding calendar month with respect to
principal and interest on the SBA Loans
(net of the amount payable to the holder
of the Guaranteed Interest, the Agent of
the SBA's Fee, the Premium Protection
Fee, the Additional Fee and the
Servicing Fee (as defined under
"--Servicing Fee" herein)), (ii)
advances by the Servicer, (iii) amounts
to be transferred from the Pre-Funding
Account and the Capitalized Interest
Account with respect to the Remittance
Dates in __________, __________ and
__________ 199_ and (iv) amounts in the
Spread Account.
Interest........................ To the extent of the Available
Funds, and prior to payments of
principal, on each Remittance Date the
Class A and Class B Certificateholders,
in that order, will be entitled to
receive interest accrued for the related
Interest Accrual Period at the
adjustable rate described below on the
Class A or Class B Certificate Balance,
as the case may be (each as defined
below), outstanding immediately prior to
such Remittance Date. If, on any
Remittance Date, the Class A or Class B
Certificates do not receive the full
amount of interest to which they are
entitled, such shortfall, plus interest
thereon compounded monthly at the then
applicable Class A or Class B Remittance
Rate (each as defined below), will be
added to the amount of interest they are
entitled to receive on succeeding
Remittance Dates. The aggregate amounts
of interest payable to the Class A and
Class B Certificates on each Remittance
Date are referred to herein as the
"Class A Interest Distribution Amount"
and the "Class B Interest Distribution
Amount", respectively. Notwithstanding
the foregoing, if a principal payment is
made to a Class of Certificates on the
Special Remittance Date, each such Class
also will receive on such date __ days'
interest at the applicable Remittance
Rate on the amount of such prepayment.
Further, the Class A and Class B
Interest Distribution Amounts for the
__________ 199_ Remittance Date will be
based on 30 days' interest on the
related Certificate Balance on
__________, 199_, after giving effect to
such prepayment.
Interest will accrue on the Certificates
on the basis of a 360-day year
consisting of twelve 30-day months at a
per annum rate (the "Class A Remittance
Rate" and "Class B Remittance Rate",
respectively) equal to:
Class A: During the initial Interest
Accrual Period, _____% per annum. During
each subsequent Interest Accrual Period,
the Prime Rate (as defined below) in
effect on the preceding Adjustment Date
(as defined below) minus _____% per
annum, subject to the adjustments
described under "Description of the
Agreement and the Certificates--Class A
and Class B Interest Distribution
Amounts" herein.
Class B: During the initial Interest
Accrual Period, _____% per annum. During
each subsequent Interest Accrual Period,
the Prime Rate in effect on the
preceding Adjustment Date minus _____%
per annum, subject to the adjustments
described under "Description of the
Agreement and the Certificates--Class A
and Class B Interest Distribution
Amounts" herein.
The Class A and Class B Remittance Rates
will be adjusted on the first Business
Day (as defined under "Certain
Definitions" herein) of each January,
April, July and October, commencing
__________, 199_ (each, an "Adjustment
Date"). The Prime Rate will equal the
lowest prime lending rate published in
the Money Rate Section of The Wall
Street Journal for the applicable
Adjustment Date.
As stated above, the amount of interest
paid on the Class A and Class B
Certificates on each Remittance Date is
based upon the amount of interest due on
the SBA Loans in the month preceding
such Remittance Date. For each such
monthly payment, the related SBA Loan
Interest Rate is based on the Prime Rate
in effect for such SBA Loan in the month
preceding the month such monthly payment
is due. For example, the monthly payment
due on an SBA Loan in October 199_ will
be based upon the Prime Rate in effect
for such SBA Loan in September 199_
(which, for SBA Loans adjusting
quarterly, generally will be the Prime
Rate in effect on July 1, 199_). This
monthly payment will be distributed to
Certificateholders on the Remittance
Date in November 199_. For this
Remittance Date, interest on the Class A
and Class B Certificates will accrue
based upon the Prime Rate in effect on
the first Business Day of October 199_.
Interest accruing on the Certificates
for the Remittance Dates occurring in
each February, May, August and November
will be based upon the Prime Rate in
effect on the first Business Day in the
preceding January, April, July and
October, respectively. However, the
interest payments on the SBA Loans
required to be distributed to
Certificateholders on each such
Remittance Date generally will be based
upon the Prime Rate in effect on the
first Business Day in the preceding
October, January, April and July,
respectively. As a result of this
mismatch, the actual amount of interest
distributed to the Certificateholders in
February, May, August and November may
be subject to the adjustments described
under "Description of the Agreement and
the Certificates -- Class A and Class B
Interest Distribution Amounts" herein.
As of any date, the "Class A Certificate
Balance" will equal the Class A
Certificate Balance on the Closing Date
reduced by all amounts previously
distributed to Class A
Certificateholders and allocable to
principal. The "Class B Certificate
Balance" will be calculated in a similar
manner.
Principal........................ To the extent of the Available
Funds remaining after payment of
interest as described above, on each
Remittance Date, holders of the Class A
Certificates will receive an amount
equal to the lesser of (A) such
remaining Available Funds and (B) the
sum of (i) the Class A Principal
Distribution Amount (as defined below)
and (ii) the Class A Carry-Forward
Amount (as defined below).
To the extent of the Available Funds
remaining after payment of interest as
described above and payment of principal
on the Class A Certificates, holders of
the Class B Certificates will receive an
amount equal to the lesser of (A) such
remaining Available Funds and (B) the
sum of (i) the Class B Principal
Distribution Amount (as defined below)
and (ii) the Class B Carry-Forward
Amount (as defined below).
With respect to each Remittance Date,
the "Class A Principal Distribution
Amount" and the "Class B Principal
Distribution Amount" will equal the
Class A Percentage or the Class B
Percentage (each as defined below), as
the case may be, multiplied by the total
of (i) the Unguaranteed Percentage of
all payments and other recoveries of
principal of an SBA Loan (net of amounts
reimbursable to the Servicer pursuant to
the Agreement) received by the Servicer
or any Subservicer in the immediately
preceding calendar month (with respect
to any Remittance Date, the "Due
Period"), excluding amounts received
relating to SBA Loans which have been
delinquent 24 months or have been
determined to be uncollectible, in whole
or in part, by the Servicer to the
extent that the Class A
Certificateholders or the Class B
Certificateholders, as the case may be,
have previously received the Class A
Percentage or the Class B Percentage, as
the case may be, of the principal
portion of the Unguaranteed Interest of
such SBA Loans; (ii) the principal
portion of any Unguaranteed Interest
actually purchased by a Seller for
breach of a representation and warranty
or other defect and actually received by
the Trustee as of the related
Determination Date; (iii) any
adjustments with respect to
substitutions of SBA Loans for which a
Seller has breached a representation or
warranty deposited in the Principal and
Interest Account and transferred to the
Certificate Account as of the related
Determination Date; (iv) the
Unguaranteed Percentage of all losses on
SBA Loans which were finally liquidated
during the applicable Due Period; (v)
the Unguaranteed Percentage of the then
outstanding principal balance of any SBA
Loan which, as of the first day of the
related Due Period, has been delinquent
for 24 months or has been determined to
be uncollectible, in whole or in part,
by the Servicer; and (vi) amounts, if
any, released from the Pre-Funding
Account on the July, __________,
__________ and ____________, 199__
Remittance Dates.
With respect to each Remittance Date,
the "Class A Carry-Forward Amount" and
the "Class B Carry-Forward Amount" will
equal the aggregate amount, if any, by
which (i) the Class A Principal
Distribution Amount or the Class B
Principal Distribution Amount, as the
case may be, with respect to any
preceding Remittance Date exceeded (ii)
the amount of the actual principal
distribution to the Class A Certificates
or the Class B Certificates, as the case
may be, on such Remittance Date.
With respect to each Remittance Date,
the "Class A Percentage" will equal
_____%, representing the beneficial
ownership interest of the Class A
Certificates in the Trust Fund.
With respect to each Remittance Date,
the "Class B Percentage" will equal
_____%, representing the beneficial
ownership interest of the Class B
Certificates in the Trust Fund.
On each Remittance Date, Available Funds
remaining after payment of interest and
principal to the Class A and Class B
Certificates and payment of the
Trustee's fees and expenses will be
deposited in the Spread Account and, to
the extent amounts in the Spread Account
would exceed the then applicable
Specified Spread Account Requirement,
such excess will be distributed to the
Spread Account Depositor (as defined
under "-- Spread Account"). See--Spread
Account" herein.
The aggregate amount of principal
payable with respect to each Class of
Certificates on each Remittance Date as
described above, together with interest
as calculated above under "--Interest",
constitutes the "Class A Remittance
Amount" and the "Class B Remittance
Amount", as the case may be, for such
Remittance Date.
Subordination of Class B
Certificates................... The rights of the holders of the Class B
Certificates to receive distributions
with respect to interest and principal
will be subordinated to such rights of
the holders of the Class A Certificates
to the extent described above under
"--Securities Offered". This
subordination is intended to enhance the
likelihood of regular receipt by holders
of Class A Certificates of the full
amount of their scheduled monthly
payments of interest and, after
distribution of the Class B Interest
Distribution Amount, principal, and to
afford the holders of the Class A
Certificates a measure of protection
against losses resulting from liquidated
SBA Loans equal to (i) the amount of
funds remaining in the Spread Account
after payment of interest on the Class A
and Class B Certificates and (ii) the
then outstanding Class B Certificate
Balance.
Remittance
Date............................ Distributions to Certificateholders will
be made on the 15th day of each month,
or if such day is not a business day, on
the succeeding business day, commencing
_______, 199_ (each, a "Remittance
Date"). Any Pre- Funded Amount remaining
at the close of business on _________,
199_ (together with __ days' interest
thereon at the applicable Remittance
Rates) will be distributed by or on
behalf of the Trustee on the Special
Remittance Date to the Class A and Class
B Certificates. Such distribution will
be made to each person in whose name a
Certificate of the applicable Class is
registered on _________, 199_.
The last scheduled Remittance Date for
the Certificates is ________, 20__. It
is expected that the actual last
Remittance Date for each Class of
Certificates will occur significantly
earlier than such scheduled Remittance
Date. See "Yield, Maturity, and
Prepayment Considerations" herein.
Record
Date........................... Distributions on the Certificates will
be made by or on behalf of the Trustee
on each Remittance Date to each person
in whose name a Certificate is
registered on the last day of the
preceding calendar month (the "Record
Date").
Closing
Date........................... _________, 199_
Spread Account................. TMS SBA Holdings, Inc., a special
purpose, bankruptcy remote Delaware
corporation (the "Spread Account
Depositor") will establish a reserve
account (the "Spread Account") with the
Trustee. The Spread Account will not be
a part of the Trust Fund but will be
pledged to the Trustee as security for
the obligations of the Spread Account
Depositor under the Agreement pursuant
to an agreement (the "Spread Account
Agreement") between the Spread Account
Depositor and the Trustee.
On the Closing Date, the Spread Account
Depositor will make an initial cash
deposit into the Spread Account in an
amount equal to ___% of the Original
Balance (the "Initial Deposit").
Thereafter, on each Remittance Date the
Trustee will deposit into the Spread
Account the cash, if any, remaining
after payment of interest and principal
to the holders of the Certificates as
described above under "--Interest" and
"--Principal", and payment of amounts
required to be deposited into the
Expense Account and certain amounts
reimbursable to the Servicer, until the
aggregate amount then on deposit in the
Spread Account (the "Spread Balance")
equals the sum of (i) the then
outstanding principal balance of the
Unguaranteed Interests of all SBA Loans
180 days or more delinquent and (ii) the
greater of (a) __% of the then
outstanding aggregate principal balance
of the Unguaranteed Interests of all the
SBA Loans, or (b) __% of the Original
Pool Principal Balance; provided,
however, that for purposes of clauses
(i) and (ii)(a), there shall be excluded
the principal portion of the
Unguaranteed Interest of SBA Loans which
have been delinquent 24 months or have
been determined to be uncollectible, in
whole or in part, by the Servicer, to
the extent that the Certificateholders
have previously received the principal
portion of the Unguaranteed Interest of
such SBA Loans (the sum of such amounts
is referred to herein as the "Specified
Spread Account Requirement").
Amounts, if any, on deposit in the
Spread Account will be available to be
applied to payments of interest and
principal on the Certificates on any
Remittance Date.
The Spread Account Depositor will not be
required to refund any amounts
previously properly distributed to it,
regardless of whether there are
sufficient funds on a subsequent
Remittance Date to make a full
distribution to holders of the
Certificates on such Remittance Date.
The funding and maintenance of the
Spread Account is intended to enhance
the likelihood of timely payment of
principal and interest to the holders of
the Certificates; however, if the SBA
Loan Pool experiences levels of
delinquencies and losses above the
scenarios used to obtain the ratings on
the Class B Certificates, the Spread
Account could be depleted, and
shortfalls could result. See "Risk
Factors -- Spread Account", "Description
of the Agreement and the
Certificates--Spread Account" and
"Ratings" herein.
[The Guaranty................... As additional credit support for the
Class B Certificates, the Class B
Certificateholders are entitled to
receive on each Remittance Date the
amount equal to the Guaranty Payment, if
any, under the guaranty provided by The
Money Store Inc. (the "Guaranty"). The
"Guaranty Payment" for any Remittance
Date will equal the difference, if any,
between the sum of the Class B Interest
Distribution Amount and the Class B
Principal Distribution Amount for such
Remittance and the portion of the
Available Funds allocated to the Class B
Certificates on such Remittance Date,
but no more than $__________ in the
aggregate.]
The SBA Loan Pool................. The following is a description of the
SBA ss. 7(a) Loans and the related
Unguaranteed Interests expected to be
delivered to the Trustee on the Closing
Date. As described herein, the Sellers
reserve the right to include in the
Trust Fund an aggregate principal amount
of up to approximately $_________ of
Section 7(a) Companion Loans and SBA 504
Loans having the characteristics set
forth in "The SBA Loan Pool--Section
7(a) Companion Loans and SBA 504 Loans."
If the Sellers do not sell to the Trust
Fund such Section 7(a) Companion Loans
and SBA 504 Loans, it is expected that
the Sellers will sell to the Trust Fund
SBA ss. 7(a) Loans having overall
characteristics substantially similar to
the SBA ss. 7(a) Loans being delivered
on the Closing Date.
All the SBA ss. 7(a) Loans were
originated or acquired by the Sellers in
accordance with the underwriting
criteria described in the Prospectus
under "The SBA Loan Lending Program --
Underwriting Criteria for SBA ss. 7(a)
Loans." None of the SBA ss. 7(a) Loans
are balloon loans and each is fully
amortizing in accordance with its terms.
On the Closing Date, it is expected that
the Trust Fund will contain the
Unguaranteed Interest in _______ SBA ss.
7(a) Loans, which SBA ss. 7(a) Loans are
secured primarily by first liens on
commercial real property generally used
by the borrower or its affiliates in the
conduct of their business. The remainder
of the SBA ss. 7(a) Loans were
originated primarily to targeted
franchisees healthcare professionals,
and other professionals such as
attorneys and accountants, and for
financing business acquisition. These
loans are often secured by second liens
on personal real estate and personal
guarantees and may include liens on
machinery and equipment and other
business assets. The SBA ss. 7(a) Loans
were originated to businesses located in
__ states and the District of Columbia;
primarily in California. As of the
Cut-Off Date, no more than approximately
____% of the SBA ss. 7(a) Loans (by
principal balance of Unguaranteed
Interests), representing ___ SBA ss.
7(a) Loans, were made to borrowers whose
businesses are included in the same four
digit standard industrial code
classification. See "The SBA Loan
Program" herein.
As of the Cut-Off Date, the aggregate
and average unpaid principal portion of
the Unguaranteed Interests of the SBA
ss. 7(a) Loans were approximately
$____________ and $____________,
respectively, the aggregate and average
unpaid principal portion of the
Guaranteed Interests of the SBA ss. 7(a)
Loans were approximately $____________
and $_____________, respectively, the
maximum and minimum original principal
portion of the Unguaranteed Interests of
the SBA ss. 7(a) Loans were
approximately $_________ and $_______,
respectively, and the maximum and
minimum original principal portion of
the Guaranteed Interests of the SBA ss.
7(a) Loans were approximately $________
and $________, respectively. The
aggregate original principal portion of
the Unguaranteed Interests of the SBA
ss. 7(a) Loans was approximately
$___________ and the aggregate original
principal portion of the Guaranteed
Interests of the SBA ss. 7(a) Loans was
approximately $____________.
As of the Cut-Off Date, the SBA ss. 7(a)
Loans bore interest at rates (each, a
"Note Rate") which ranged from _____% to
_____% per annum and the weighted
average Note Rate was approximately
______% per annum. As of the Cut-Off
Date, the SBA ss. 7(a) Loans had a
weighted average age of approximately __
months, a weighted average original term
of approximately ___ months, a weighted
average gross margin of approximately
____%, a weighted average lifetime floor
of approximately ____%, and a weighted
average debt-service coverage ratio of
approximately _____. The weighted
average Guaranteed Percentage of the SBA
ss. 7(a) Loans was approximately ____%.
The weighted average Excess Spread,
expressed as a percentage of the
principal balances of the Unguaranteed
Interests, was approximately _____% as
of the Cut-Off Date. Such Excess Spread
is in addition to the Extra Interest (as
defined under "Description of the
Agreement and the Certificates--Class A
and Class B Interest Distribution
Amounts" herein) available from the
unguaranteed portion of the SBA ss. 7(a)
Loans. Approximately _____% of the SBA
ss. 7(a) Loans (by principal balance of
Unguaranteed Interests) do not have a
lifetime interest rate cap. As of the
Cut-Off Date, the weighted average
lifetime cap of SBA ss. 7(a) Loans with
lifetime interest rate caps was
approximately ____%. As described
herein, the existence of a lifetime
interest rate cap or floor will not
limit the Excess Spread included in the
related Unguaranteed Interest. See "The
SBA Loan Pool" herein.
Transfer of Assets................. Each Note will be endorsed by the
applicable Seller by
means of an allonge (i.e., a separate
piece of paper attached to the Note) and
delivered to the Agent of the SBA (or
with respect to the Notes relating to
the Section 7(a) Companion Loans and the
SBA 504 Loans, delivered to the
Trustee). On or before the Closing Date
(or, with respect to a Subsequent SBA
Loan, on or before the related transfer
date), the Agent of the SBA (or with
respect to the Section 7(a) Companion
Loans and the SBA 504 Loans, if any, the
Trustee) will acknowledge receipt of
each such Note for each SBA Loan in the
SBA Loan Pool and that each such Note
has been endorsed as follows (bracketed
language is applicable only for SBA ss.
7(a) Loans): "Pay to the order of [Name
of Trustee], and its successors and
assigns, as trustee under that certain
Pooling and Servicing Agreement dated as
of _________, 199_, for the benefit of
[the United States Small Business
Administration and] holders of The Money
Store SBA Loan-Backed Certificates,
Series 199_-_, Class A and Class B[, as
their respective interests may appear],
without recourse".
With respect to each SBA Loan in the SBA
Loan Pool, the applicable Seller will be
required to deliver the following
additional documentation to the Trustee
at or prior to the Closing Date (or,
with respect to a Subsequent SBA Loan,
in the case of (a) below, at or prior to
the related transfer date):
(a) For each SBA Loan secured by
commercial real property or residential
real property:
(1) Original recorded Mortgage, or if
the original is unavailable, a copy
thereof certified to be true and
complete by the applicable Seller.
(2) Certified copy of the Assignment of
the Mortgage endorsed as follows
(bracketed language is applicable only
for SBA ss. 7(a) Loans): "[Name of
Trustee], ("Assignee") its successors
and assigns, as trustee under the
Pooling and Servicing Agreement dated as
of ________, 199_ [, subject to the
Multi-Party Agreement dated as of
________, 199_]." The original
assignments will be transmitted by the
applicable Seller for recording promptly
following the Closing Date.
(3) Original recorded intervening
assignments, if any, or if the original
is unavailable, copies thereof certified
by the applicable Seller to be true and
complete.
(4) Originals or certified copies of all
title insurance policies or other
evidence of lien position, including but
not limited to PIRT policies, limited
liability reports and lot book reports,
to the extent the Sellers obtain such
policies or other evidence of lien
position in accordance with the criteria
described herein.
(b) For all SBA Loans:
(1) Blanket assignment of all collateral
securing the SBA Loan, including without
limitation, all rights under applicable
guarantees and insurance policies.
(2) Irrevocable power of attorney of the
applicable Seller to the Trustee to
execute, deliver, file or record and
otherwise deal with the collateral for
the SBA Loans in accordance with the
Agreement. The power of attorney will be
delegable by the Trustee to the Servicer
and any successor servicer and will
permit the Trustee or its delegate to
prepare, execute and file or record UCC
financing statements and notices to
insurers.
(3) Blanket Uniform Commercial Code
("UCC") UCC-1 financing statements
identifying by type all collateral for
the SBA Loans in the SBA Loan Pool and
naming the Trustee, and with respect to
the SBA ss. 7(a) Loans, the SBA, as
Secured Parties and the applicable
Seller as the Debtor. See "The
Agreements-- Sale of SBA Loans" in the
Prospectus.
The Trustee will be required to provide
an interim certification as to the
receipt of such documents within 90 days
after the Closing Date and to provide a
final certification within one year
after the Closing Date.
Multi-Party Agreement............... TMSIC and MSNY, as Sellers, the
Servicer, the Trustee and the SBA will
enter into a Multi-Party Agreement,
dated as of _________, 199_ (the
"Multi-Party Agreement"), which will set
forth the relationship of the parties
with respect to the SBA ss. 7(a) Loans
and the proceeds thereof and the consent
of the SBA to the transactions
contemplated by the Agreement.
Servicing of the
SBA Loans........................ MSNY will service the SBA Loans sold by
it to the Trust Fund and TMSIC will
service the SBA Loans sold by it and
TMSCMI to the Trust Fund, in each case,
in accordance with the Agreement and,
with respect to the SBA ss. 7(a) Loans,
the SBA Rules and Regulations and the
Multi-Party Agreement, and will cause
the SBA Loans to be serviced with the
same care as it customarily employs and
exercises in servicing and administering
small business loans for its own
account, giving due consideration for
the reliance of the Trustee on the
Servicer. Such servicing includes,
without limitation, the right to release
and/or substitute collateral for an SBA
Loan.
Monthly Advances................ The Servicer is required to remit to the
Trustee no later than the day of each
month which is three business days prior
to the Remittance Date (the
"Determination Date") for deposit in the
Certificate Account the amount (the
"Monthly Advance"), if any, by which (i)
30 days' interest at a rate equal to the
then applicable weighted average Class A
and Class B Remittance Rates plus the
rate used in determining certain
expenses of the Trust Fund (the
"Adjusted SBA Loan Remittance Rate") on
the aggregate Class A and Class B
Principal Balances immediately prior to
the related Remittance Date (as the
amount calculated pursuant to this
clause (i) may be adjusted in accordance
with the limits described under
"Description of the Agreement and the
Certificates--Class A and Class B
Interest Distribution Amounts" herein)
exceeds (ii) the amount received by the
Servicer as of the related Record Date
in respect of interest on the SBA Loans
minus the interest payable to the
holders of the Guaranteed Interest, the
Additional Fee and the fee payable to
the Agent of the SBA (plus, for the
Remittance Dates in ___________,
___________ and _____________, 199_, the
sum of (a) all funds to be transferred
to the Certificate Account from the
Capitalized Interest Account for such
Remittance Date and (b) certain
investment earnings on amounts in the
Pre-Funding Account for the applicable
Remittance Date). The Servicer is not
required to make Monthly Advances which
it determines, in good faith, would be
nonrecoverable from amounts received in
respect of the SBA Loans.
Monthly Advances are reimbursable in the
first instance from late collections of
interest, Liquidation Proceeds,
Insurance Proceeds and proceeds received
by the Servicer in connection with
condemnation, eminent domain or a
release of lien ("Released Mortgaged
Property Proceeds") collected with
respect to the related SBA Loan as to
which the Monthly Advances were made.
The Servicer's right to reimbursement
for such advances in excess of such
amounts is limited to late collections
of interest received on the SBA Loans
generally; provided, however, that the
Servicer's right to such reimbursement
is subordinate to the rights of the
Certificateholders, the holder of the
Premium Protection Fee and the holders
of the Guaranteed Interest. Monthly
Advances are intended to provide
sufficient funds for the payment of
interest to the Certificateholders at
the then applicable Class A or Class B
Remittance Rate, plus an additional
amount, if any, required to pay the fees
and expenses of the Trustee.
Compensating Interest............ Not later than each Determination Date,
with respect to each SBA Loan as to
which a principal prepayment in full or
a Curtailment was received during the
related Due Period, the Servicer is
required to remit to the Trustee, from
amounts otherwise payable to the
Servicer as servicing compensation, an
amount ("Compensating Interest") equal
to any excess of (a) 30 days' interest
on the Unguaranteed Percentage of the
related principal balance at the
Adjusted SBA Loan Remittance Rate over
(b) that portion of the amount of
interest actually received in respect of
the related SBA Loan during such Due
Period and available to be paid to the
Certificateholders.
Servicing Advances.................. The Servicer will be entitled to
reimbursement for amounts advanced by it
constituting "out-of-pocket" costs and
expenses relating to (i) the
preservation and restoration of any
related Mortgaged Property or other
collateral, (ii) enforcement
proceedings, including foreclosures and
(iii) certain other customary amounts
described in the Agreement. Such
advances ("Servicing Advances") are
generally reimbursable to the Servicer
from Liquidation Proceeds, Released
Mortgaged Property Proceeds, Insurance
Proceeds and such other amounts as may
be collected by the Servicer from the
related Borrower or otherwise relating
to the SBA Loan in respect of which such
amounts are owed; provided, however,
that Servicing Advances in excess of
such amounts are reimbursable to the
same extent and from the same sources as
Monthly Advances.
Servicing Fee..................... The Servicer is entitled to a servicing
fee of ___% per annum (the "Servicing
Fee") of the unpaid principal balance of
each SBA Loan, calculated and paid
monthly from the interest portion of
monthly payments, Liquidation Proceeds
and certain other proceeds collected.
See "The Agreements--Servicing and Other
Compensation and Payment of Expenses" in
the Prospectus.
Optional Termination by
the Servicer....................... The Servicer may, at its option,
terminate the Agreement on any date on
which the then outstanding aggregate
principal balance of the Unguaranteed
Interests is less than 10% of the sum of
(i) the Original Pool Principal Balance
and (ii) the original Pre-Funded Amount
by purchasing, on the next succeeding
Remittance Date, all of the Unguaranteed
Interests and any other assets in the
Trust Fund at a price equal to the sum
of (i) 100% of the then outstanding
Class A and Class B Principal Balances,
and (ii) 30 days' interest thereon at
the then applicable Class A and Class B
Remittance Rates (the "Termination
Price"). See "Description of the
Agreement and the
Certificates--Termination; Purchase of
SBA Loans" herein.
Tax Considerations ................. No real estate mortgage investment
conduit ("REMIC") election will be made
for the Trust Fund. Stroock & Stroock &
Lavan LLP, special federal tax counsel
("Federal Tax Counsel"), will give its
opinion that the Trust Fund will be
classified as a "grantor trust" for
federal income tax purposes. See
"Federal Income Tax Consequences" herein
and "Federal Income Tax Consequences" in
the Prospectus.
It is not anticipated that the Class A
Certificates or the Class B Certificates
will be treated as issued with original
issue discount ("OID").
Special considerations may apply to cash
method holders of Class B Certificates
by reason of the subordination of the
Class B Certificates. Also, special
considerations may apply to individuals
and certain pass-through entities that
hold Class A Certificates or Class B
Certificates. See "Risk Factors--Federal
Income Tax Considerations" and "Federal
Income Tax Consequences" herein and
"Federal Income Tax Consequences" in the
Prospectus.
ERISA Considerations................ No Certificates may be purchased for, or
on behalf of, any employee benefit plan
or other retirement arrangement which is
subject to Title I of the Employee
Retirement Income Security Act of 1974,
as amended, and/or Section 4975 of the
Internal Revenue Code of 1986, as
amended, or any entity whose underlying
assets include plan assets by reason of
such plan or account investing in such
entity (including insurance company
separate or general accounts and
collective investment funds). By its
acceptance of a Certificate, each
Certificateholder will be deemed to have
represented and warranted that it is not
subject to the foregoing limitations.
See "ERISA Considerations" herein and in
the Prospectus.
Legal Investment.................. No representation will be made as to
whether or the extent to which the
Certificates constitute legal
investments for investors.
Rating ........................... It is a condition to their issuance that
the Class A Certificates be rated "Aaa"
and "AAA" by [Moody's Investors Service,
Inc. ("Moody's")] and[ Duff & Phelps
Credit Rating Co. ("Duff & Phelps")],
respectively, and that the Class B
Certificates be rated not lower than
"___" and "___" by [Moody's] and [Duff &
Phelps], respectively. A security rating
is not a recommendation to buy, sell or
hold securities and may be subject to
revision or withdrawal at any time. No
person is obligated to maintain the
rating on any Certificate. See "Ratings"
herein.
Registration of the
Certificates...................... The Class A Certificates will be
represented by global certificates
registered in the name of Cede & Co.
("Cede"), as the nominee of The
Depository Trust Company ("DTC") in the
United States, or CEDEL, Societe anonyme
("CEDEL") or the Euroclear System
("Euroclear") in Europe. The Class B
Certificates will be either (i)
registered in the name of Cede, as the
nominee of DTC in the United States, or
CEDEL or Euroclear in Europe, with
similar effect as the Class A
Certificates, or (ii) issued in physical
form, as determined by the Sellers prior
to the initial issuance of the
Certificates. No Holder of a Certificate
registered through DTC will be entitled
to receive definitive certificates
("Definitive Certificates") representing
such person's interest, except in the
event that Definitive Certificates are
issued in respect of such person's
interest under the limited circumstances
described herein. All references herein
to "Class A and Class B
Certificateholders" or "Holders" will
reflect the rights of the beneficial
owners of Class A and Class B
Certificates, as such rights may be
exercised, in the case of those
Certificates registered through DTC,
CEDEL or Euroclear, through DTC and
Participants, or CEDEL or Euroclear, as
the case may be, except as otherwise
specified herein. See "Risk Factors" and
"Description of the
Certificates--Registration of
Certificates" herein.
RISK FACTORS
Investors should consider, among other things, the following factors in
addition to the other information set forth in this Prospectus Supplement in
connection with the purchase of Certificates. Investors also should consider the
factors set forth under the heading "Risk Factors" in the Prospectus.
LIMITED LIQUIDITY
There is currently no secondary market for the Certificates. Although [Name
of Underwriting] (the "Underwriter") currently intends to make a secondary
market in the Certificates, it is under no obligation to do so. There can be no
assurance that a secondary market will develop or, if a secondary market does
develop, that it will provide Holders of the Certificates with liquidity of
investment or that it will continue for the lives of the Certificates. In
addition, transfers of the Class B Certificates will be restricted as described
under "ERISA Considerations".
FEDERAL INCOME TAX CONSIDERATIONS
If the Class B Certificateholders receive distributions of less than their
proportionate share of the Trust Fund's receipts of principal or interest (the
"Shortfall Amount") because of the subordination of the Class B Certificates,
although the matter is not free from doubt, Federal Tax Counsel believes that
holders of Class B Certificates would be treated for federal income tax purposes
as if they had (1) received as distributions their full share of such receipts,
(2) paid over to the Class A Certificateholders an amount equal to such
Shortfall Amount, and (3) retained the right to reimbursement of such amounts to
the extent of future collections otherwise available for deposit in the Spread
Account. However, Federal Tax Counsel cannot opine to such treatment.
Under this analysis, (1) Class B Certificateholders would be required to
accrue as current income any interest, OID income, or (to the extent paid on the
SBA Loans) accrued market discount of the Trust Fund that was a component of the
Shortfall Amount, even though such amount was in fact paid to the Class A
Certificateholders, (2) a loss would only be allowed to the Class B
Certificateholders when their right to receive reimbursement of such Shortfall
Amount became worthless (i.e., when it became clear that amount would not be
available from any source to reimburse such loss), and (3) reimbursement of such
Shortfall Amount prior to such a claim of worthlessness would not be taxable
income to Class B Certificateholders because such amount was previously included
in income. Those results should not significantly affect the inclusion of income
for Class B Certificateholders on the accrual method of accounting, but could
accelerate inclusion of income to Class B Certificateholders on the cash method
of accounting by, in effect, placing them on the accrual method. Moreover, the
character and timing of loss deductions is unclear.
A Certificateholder will be entitled to deduct, consistent with its method
of accounting, its pro rata share of reasonable servicing fees and other fees
paid or incurred by the Trust Fund as provided in Section 162 or 212 of the
Internal Revenue Code of 1986, as amended. If a Certificateholder is an
individual, estate or trust, the deduction for such Holder's share of such fees
will be allowed only to the extent that all of such Holder's miscellaneous
itemized deductions, including such Holder's share of such fees, exceed two
percent of such Holder's adjusted gross income. For other federal income tax
considerations, see "Federal Income Tax Consequences" herein and "Federal Income
Tax Consequences" in the Prospectus.
STATE TAX CONSIDERATIONS
In addition to the federal income tax consequences described in "Federal
Income Tax Consequences" herein and "Federal Income Tax Consequences" in the
Prospectus, potential investors should consider the state income tax
consequences of the acquisition, ownership, and disposition of the Certificates.
State income tax law may differ substantially from the corresponding federal
law, and this Prospectus Supplement and the accompanying Prospectus do not
purport to describe any aspect of the income tax laws of any state. Therefore,
potential investors should consult their own tax advisors with respect to the
various state tax consequences of an investment in the Certificates.
NATURE OF COLLATERAL
As set forth herein under "The SBA Loan Pool--General," commencing in 1995
the Sellers increased their focus on originating SBA Loans to targeted
franchises and professionals and for financing business acquisitions. These
loans are secured primarily by liens on machinery and equipment, other business
assets and personal guarantees. In originating these loans, the Sellers place
primary emphasis on the creditworthiness of the small business concern and
related Obligor, and less emphasis is given to the value of the related
collateral. In some instances, the amount of the SBA Loan exceeds the sum of the
value of the related collateral. If such loans were to go into default, the
Trust may realize little or no liquidation proceeds.
Further, because the market value of equipment and other business assets
generally declines with age or obsolescence, such equipment and/or other assets
may not provide adequate security in the event it is repossessed and sold. Some
of the equipment, such as computers, also may be subject to sudden, significant
declines in value because of technological advances. Also, in liquidation sales
the Trust may be unable to realize the fair market value of any collateral sold.
UNPERFECTED SECURITY INTERESTS IN CERTAIN COLLATERAL
For each SBA Loan secured by real property, assignments of the related
Mortgages will be transmitted by the applicable Seller for recording promptly
following the Closing Date. Also, the Sellers will deliver to the Trustee
blanket assignments of all other collateral securing the SBA Loans. In
connection with originating SBA Loans secured by collateral other than real
estate, the Sellers obtain and file UCC financing statements naming the related
Obligor as debtor where such action is necessary to perfect a security interest
in such collateral. Because of the administrative burden and expense that would
be entailed in so doing, these UCC financing statements will not be re-assigned
to the Trustee. The Trustee will have the benefit of the Sellers' security
interest in the collateral related to such SBA Loans. However, since assignments
will not be recorded in the name of the Trustee, if the Sellers were to become
debtors under the federal bankruptcy code or similar applicable state laws, a
creditor or trustee in bankruptcy thereof, or the Sellers as
debtors-in-possession, might be able to defeat the Trustee's security interest
in such collateral. Additionally, certain judgment creditors of, or tax and
other liens against, the Sellers or their property may have priority over the
Trustee's security interest.
JUNIOR LIENS
Approximately ___% of the SBA Loans secured by a Commercial Property (other
than certain SBA ss. 7(a) Loans originated in conjunction with a Section 7(a)
Companion Loan) constitute a first lien on the related Commercial Property. The
majority of such SBA Loans also are secured by a first lien on related business
assets. However, certain SBA Loans secured by a Commercial Property (including
but not limited to those originated in conjunction with a Section 7(a) Companion
Loan), along with substantially all of the SBA Loans secured by a Residential
Property, constitute second or third liens and the related Prior Liens are not
included in the SBA Loan Pool. Also, many of the SBA Loans are secured by
collateral other than real property. See "The SBA Loan Pool - General" herein.
The primary risk to holders of SBA Loans secured by junior liens is the
possibility that adequate funds will not be received in connection with a
foreclosure of the related Prior Liens to satisfy fully both such Prior Liens
and the SBA Loan. If a holder of a Prior Lien forecloses on a Mortgaged
Property, the proceeds of the foreclosure sale will be applied first to the
payment of court costs and fees in connection with the foreclosure, second to
real estate taxes, third in satisfaction of all principal, interest, prepayment
or acceleration penalties, if any, and any other sums due and owing to the
holders of each Prior Lien. The claims of the holders of all Prior Liens will be
satisfied in full out of proceeds of the liquidation of the Prior Liens, if such
proceeds are sufficient, before the Trust Fund receives any payments in respect
of the SBA Loan.
If the Servicer were to foreclose on any mortgage securing an SBA Loan, it
would do so subject to any related Prior Liens. For the debt related to the SBA
Loan to be paid in full at such sale, a bidder at the foreclosure sale of the
related Mortgaged Property would have to bid an amount sufficient to pay off all
sums due under the SBA Loan and the Prior Liens or purchase the Mortgaged
Property, for the full amount of the SBA Loan, subject to the Prior Liens.
Similarly, if the Servicer were to take possession of any other Collateral, it
would do so subject to any related Prior Lien. See "Federal Income Tax
Consequences" herein and "Federal Income Tax Consequences" in the Prospectus.
SBA LOAN INTEREST RATES
The rate of interest borne by each SBA Loan (the "SBA Loan Interest Rate")
is equal to the Prime Rate as of the first Business Day or, with respect to
certain SBA Loans, the first day of the related calendar quarter, in each case
plus the appropriate margin. With respect to SBA ss. 7(a) Loans having
Unguaranteed Interests with an aggregate principal amount of approximately
$____________, the terms of the related Notes limit the maximum and minimum SBA
Loan Interest Rates, respectively. Generally, the terms of such Notes provide
that the SBA Loan Interest Rate cannot increase (or decrease) five percentage
points above (or below) the SBA Loan Interest Rate in effect when the related
SBA Loan was fully funded. These maximum and minimum SBA Loan Interest Rate
provisions will not have a disproportionate effect on the Holders of either
Class of Certificates. As described herein, if, as a result of such maximum and
minimum SBA Loan Rate provisions, more or less interest is collected on the SBA
Loans than would be collected in the absence of such provisions, such excess or
shortfall will be allocated to the Class A and Class B Certificates pro rata in
accordance with the amount of interest each such Class of Certificates would
otherwise be entitled to receive but for such adjustment. Because in determining
the Class A and Class B Interest Distribution Amounts, provision is made for
such maximum and minimum SBA Loan Rates, if the full amount of interest required
to be paid on the SBA Loans in accordance with their terms is collected, and
required amounts are received by the Trust Fund, such amounts will be sufficient
to pay interest on the Certificates, regardless of changes in the underlying
interest rates. See "The SBA Loan Pool -- Certain Characteristics of the SBA
Loan Pool" and "Description of the Agreement and the Certificates -- Class A and
Class B Interest Distribution Amounts" herein.
GEOGRAPHIC CONCENTRATION
Approximately ___%, ___%, ___% and ___% of the Trust Assets will consist of
SBA Loans that are secured by Mortgaged Properties located in the states of
_________, __________, __________ and __________, respectively. Because of the
relative geographic concentration of the SBA Loans within these states,
delinquencies and losses on the SBA Loans may be higher than would be the case
if the SBA Loans comprising the Trust Assets were more geographically
diversified. With respect to the SBA Loans in these states, certain of the
Mortgaged Properties may be more susceptible to certain types of special hazards
that are not covered by any casualty insurance, such as earthquakes, floods and
other natural disasters and major civil disturbances, than similar properties
located in other parts of the country.
[THE GUARANTY
The rating of the Class __ Certificates will be based in part on an
assessment of The Money Store Inc.'s ability to make payments under the
Guaranty. Any reduction in the rating assigned to the unsecured long-term debt
obligations of The Money Store Inc. by [__________] may result in a similar
reduction in the rating of the Class __ Certificates.]
SPREAD ACCOUNT
As described herein, the Spread Account is intended to enhance the
likelihood of timely payment of principal and interest on the Certificates.
However, if the SBA Loan Pool experiences extremely high levels of delinquencies
and losses, the Spread Account could be depleted, resulting in shortfalls in
payments to the Certificateholders. Any such shortfall would be allocated
against payments of principal, first to the Class B Certificateholders and then
to the Class A Certificateholders. Additional shortfalls would be allocated
against payments of interest, first to the Class B Certificateholders and then
to the Class A Certificateholders. See "Description of the Agreement and the
Certificates -- Spread Account" herein.
THE SBA LOAN POOL
GENERAL
Unless otherwise noted, all statistical percentages in this Prospectus
Supplement are measured by the aggregate principal balances of the SBA ss. 7(a)
Loans expected to be delivered to the Trustee on the Closing Date, and the
Unguaranteed Interests or the Guaranteed Interests therein, as the case may be,
at the close of business on the Cut-Off Date and all dollar amounts are based on
the principal balances thereof at the close of business on the Cut-Off Date. As
used herein, the term "Cut-Off Date" means _____, 199__ with respect to each SBA
Loan originated on or prior to such date and the applicable date of origination
for each SBA Loan originated after such date. All of the SBA Loans were, and all
of the Subsequent SBA Loans will have been, originated or acquired by the
Sellers and consist of adjustable-rate loans, evidenced by promissory notes (the
"SBA Notes") and, in the case of the SBA ss. 7(a) Loans, partially guaranteed by
the SBA. The principal portion of the Unguaranteed Interests of the SBA ss. 7(a)
Loans aggregated approximately $______________ as of the Cut-Off Date. The SBA
ss. 7(a) Loans were originated to businesses located in ___ states and the
District of Columbia. The SBA ss. 7(a) Loans were primarily originated to
businesses located in ___________, __________, ___________ and ___________.
Historically, most of the SBA ss. 7(a) Loans originated by the Sellers were
loans primarily secured by first liens on commercial real property used by the
related borrower or its affiliates in the conduct of their business. Commencing
in 1995, the Sellers increased their focus on originating loans to targeted
franchisees, health care professionals and other professionals, such as
attorneys and accountants, and for financing business acquisitions. These loans
generally are secured by second liens on personal real estate, personal
guarantees, liens on machinery and equipment and other business assets. The
Seller's believe that this approach is consistent with their philosophy of
expanding into selected markets that present opportunities for growth. In
originating these loans, the Sellers concentrate on analyzing the underlying
business and the borrower's ability to repay the related loan. The Sellers'
believe that at the time of origination each such loan is adequately secured by
one or more items of Collateral. See "The SBA Loan Lending Program--Underwriting
Criteria for SBA ss. 7(a) Loans" in the Prospectus.
Approximately ____% of the SBA ss. 7(a) Loans (by principal balance) were
originated to businesses located in California, a state currently experiencing
economic difficulties. This concentration results primarily from the Servicer
being headquartered in California, where it began originating SBA Loans in the
early 1980s and where it expanded its marketing efforts and market share prior
to the current economic conditions. The Sellers believe that the concentration
of SBA ss. 7(a) Loans in the Trust Fund originated to businesses located in
California is representative of their SBA ss. 7(a) Loan portfolio as a whole.
PAYMENTS ON THE SBA LOANS
The SBA Loans have payments of principal and interest due on the first of
the month with interest payable in arrears at a rate equal to the Prime Rate as
of the first Business Day or, with respect to certain SBA Loans, the first day
of the related calendar quarter, in each case plus the appropriate margin
(subject to applicable lifetime floors and caps). For example, the Prime Rate on
October 1st is used to determine the interest rate paid for the months of
October, November and December. Since interest is paid in arrears, interest and
principal for these months is scheduled to be received in November, December and
January, respectively. The monthly payment received is apportioned between
interest and principal based upon a "simple interest" basis, which means that
payments are applied as they are received first to accrued interest, then to
principal, with interest calculated on the number of days between the current
and previous payments. If a monthly payment is received prior to its due date,
less of such payment will be allocated to interest than would be the case if
such payment were received on its due date. Conversely, if a monthly payment is
received after its due date, more of such payment will be allocated to interest
than would be the case if such payment were received on its due date. None of
the SBA Loans is a balloon loan and each is fully amortizing in accordance with
its terms. However, the monthly payments are re-calculated each quarter to
reflect changes in interest rates, the then-current principal balance and the
then-remaining term to maturity.
CERTAIN CHARACTERISTICS OF THE SBA LOAN POOL
Set forth below is a description of certain characteristics of the SBA ss.
7(a) Loans expected to constitute the SBA Loan Pool as of the Closing Date. As
described herein, the Sellers reserve the right to sell to the Trust Fund
Section 7(a) Companion Loans and SBA 504 Loans in an aggregate principal amount
of up to approximately $__________ and having the characteristics set forth
under "-- Section 7(a) Companion Loans and SBA 504 Loans." If such loans are not
sold to the Trust Fund, it is expected that the Sellers will sell to the Trust
Fund SBA ss. 7(a) Loans having overall characteristics substantially similar to
the SBA ss. 7(a) Loans being delivered on the Closing Date. Certain of the
percentage columns may not sum to 100.00% due to rounding.
[Each chart will set forth at least the following information for the specific
characteristic: (i) aggregate unpaid principal balance, (ii) percentage based
upon aggregate principal balance and (iii) number of SBA Loans].
<PAGE>
The geographic distribution of the SBA ss. 7(a) Loans by state as of the
Cut-Off Date was as follows:
<PAGE>
The interest rates borne by the SBA Notes (the "Note Rates") were
distributed as follows as of the Cut-Off Date:
<PAGE>
The Margins added to the Prime Rate on each Interest Adjustment Date to
determine the new Note Rates were distributed as of the Cut-Off Date as follows:
<PAGE>
The minimum lifetime Note Rates borne by the SBA ss. 7(a) Loans were as
follows (1):
- -----------------------------
(1) For purposes of determining the weighted average minimum lifetime Note Rate,
those SBA ss. 7(a) Loans not containing a stated minimum lifetime Note Rate are
assumed to have a minimum lifetime Note Rate equal to the applicable Margin.
<PAGE>
The maximum lifetime Note Rates borne by the SBA ss. 7(a) Loans were as
follows:
<PAGE>
The distribution of the number of remaining months to maturity of the SBA
ss. 7(a) Loans as of the Cut-Off Date was as follows:
<PAGE>
The distribution of the number of months since origination of the SBA ss.
7(a) Loans as of the CutOff Date was as follows:
<PAGE>
The years in which the SBA ss. 7(a) Loans were originated was as follows:
<PAGE>
The Excess Spread as a percentage of the principal balance of the
Unguaranteed Interests of the SBA ss. 7(a) Loans as of the Cut-Off Date was as
follows: (1)
- -------------------------
(1) With respect to each SBA ss. 7(a) Loan, the Excess Spread is included
in the related Unguaranteed Interest.
<PAGE>
The Unguaranteed Percentage of the SBA ss. 7(a) Loans as of the Cut-Off
Date was as follows:
<PAGE>
The distribution of the debt-service coverage ratios at origination of the
SBA ss. 7(a) Loans was as follows: (1)
- ------------------------
(1) Represents the ratio of the pro forma annual debt service payments to annual
net operating income.
(2) For these SBA ss. 7(a) Loans, the Borrower had a negative net operating
income for the fiscal year for which ratio was determined. The Sellers believed
that based upon the projected net operating income and certain other factors, it
was appropriate to originate such SBA ss. 7(a) Loan.
<PAGE>
The distribution of the original terms of the SBA ss. 7(a) Loans was as
follows:
<PAGE>
The distribution of the original balances of the SBA ss. 7(a) Loans was as
follows:
<PAGE>
The distribution of the original balances of the Unguaranteed Interests was
as follows:
<PAGE>
The distribution of the principal balances of the SBA ss. 7(a) Loans as of
the Cut-Off Date was as follows:
<PAGE>
The distribution of the principal balances of the Unguaranteed Interests as
of the Cut-Off Date was as follows:
<PAGE>
The type of program under which the SBA ss. 7(a) Loans were originated was
as follows:
<PAGE>
Subsequent SBA Loans
The Subsequent SBA Loans to be included in the Trust Fund are expected to
have the following characteristics as of the Cut-Off Date (unless otherwise
indicated): 1
Maximum original Unguaranteed Interest.......................$_______
Minimum original Unguaranteed Interest.......................$_______
Maximum original Guaranteed Interest.........................$_______
Minimum original Guaranteed Interest.........................$_______
Range of Note Rates.......................................____%-____%
Range of ages.........................................__ to __ months
Range of original terms.............................___ to ___ months
Range of gross margins.................................____% to ____%
Range of original debt service
Coverage ratios......................................._____% to ____%
- --------
1 The actual characteristics of the Subsequent SBA Loans to be included in the
Trust Fund may vary somewhat from the characteristics presented. The
Sellers do not expect that any such variation will be material.
<PAGE>
SECTION 7(A) COMPANION LOANS AND SBA 504 LOANS.
The Section 7(a) Companion Loans and SBA 504 Loans, if any, to be included
in the Trust Fund are expected to have the following characteristics as of the
Cut-Off Date (unless otherwise indicated):(1)
Average unpaid principal balance..........................$____________
Maximum original principal balance........................$____________
Minimum original principal balance........................$____________
Range of Note Rates....................................... ___%-___%
Weighted average Note Rate................................ ___%
Weighted average age...................................... mos.
Weighted average original term............................ mos.
Weighted average gross margin............................. ___%
Weighted average original L-T-V (based
on net discounted collateral value)..................... ___%
Weighted average original L-T-V (without
giving effect to discounts to
collateral values)...................................... ___%
Weighted average original debt service
coverage ratio.......................................... ___%
[If a significant portion of the Trust Fund will consist of Section
7(a) Companion Loans and/or SBA 504 Loans, charts similar to those set
forth above for the SBA ss. 7(a) Loans will be included.]
- -------------------
(1) The actual characteristics of the Section 7(a) Companion Loans and SBA 504
Loans, if any, to be included in the Trust Fund may vary somewhat from the
characteristics presented. The Sellers do not expect that any such variation
will be material.
<PAGE>
The following table sets forth the Prime Rate for the first business day of
each of the following calendar quarters as reported in The Wall Street Journal:
199 199 199 199
---- ---- ---- ---
Quarter
1st % % % %
2nd
3rd
4th
The values set forth in the table above are historical and may not be indicative
of future values of the Prime Rate.
<PAGE>
THE SBA LOAN PROGRAM
GENERAL
The Small Business Act of 1953 (the "Act"), which created the Small
Business Administration, also established the general business loan program
under Section 7(a) of the Act (the "Section 7(a) Program"). The Section 7(a)
Program was intended to encourage lenders to provide loans to qualifying small
businesses. Loans made under the Section 7(a) Program can be used to construct,
expand or convert facilities, to purchase building equipment or materials or to
finance machinery and equipment, business acquisitions and inventory. Money lent
under the Section 7(a) Program also can be used for working capital.
The Act also established the SBA 504 Loan Program (the "SBA 504 Loan
Program") to encourage lenders to provide fixed asset financing to existing
qualifying small businesses. SBA 504 Loans may be used for plant acquisition,
construction, renovation, expansion, land and site improvements, acquisition and
installation of machinery and equipment and the interest on interim financing.
SBA 504 Loans are not guaranteed by the SBA.
THE SECTION 7(A) LOAN GUARANTY PROGRAMS
The SBA administers three levels of lender participation in the Section
7(a) Program. Under the first level, known as the Guaranteed Participant
Program, the lender gathers and processes data from applicants and forwards it,
along with a request for the SBA's guaranty, to a local SBA office. The SBA then
completes an independent analysis and decides whether to guaranty the loan. SBA
turnaround time on such applications varies greatly, depending on its backlog of
loan applications. [As of ____________ ___, 199_, the most recent date for which
such information is available, loans made under the Guaranteed Participant
Program accounted for approximately $___ billion aggregate principal balance,
representing approximately __% of the total outstanding principal balance of
loans originated under the Section 7(a) Program as of such date.]
Under the second level of lender participation, known as the Certified
Lender Program, the lender (the "Certified Lender") gathers and processes data
from applicants and makes a request to the SBA, as in the Guaranteed Participant
Program procedure. The SBA then performs an expedited review of the lender's
credit analysis, which generally is completed within three working days. The SBA
requires that lenders originate loans meeting certain portfolio and volume
criteria before authorizing them to participate in the Certified Lender Program.
[Loans made under this portion of the Section 7(a) Program accounted for
approximately $___ billion aggregate principal balance, representing
approximately __% of the Section 7(a) Program portfolio as of ________ ___,
199_.]
Under the third level of lender participation, known as the Preferred
Lender Program, the lender (the "Preferred Lender") has the authority to approve
a loan and obligate the SBA to guarantee the loan without submitting an
application to the SBA for credit review. The lender is required to notify the
SBA of the approved loan and submit certain documents. The standards established
for participants in the Preferred Lender Program are more stringent than those
for participants in the Certified Lender Program and involve meeting additional
portfolio quality and volume requirements. The granting of Preferred Lender
status is based upon a lender's ability to originate and service loans in a
particular territory to the satisfaction of the SBA. [Preferred Lender Program
loans accounted for approximately $___ billion aggregate principal balance,
representing approximately __% of the Section 7(a) Program portfolio as of
______________ __, 199_.]
SECTION 7(A) LOAN PARAMETERS
Under each of the Guaranteed Participant, Certified Lender and Preferred
Lender Programs, the SBA guarantees loans of $100,000 or less up to 80%, and
loans in excess of $100,000 up to 75%, subject to a per borrower guaranty
maximum of $750,000. Loans originated under the Section 7(a) Program can bear
either fixed or adjustable rates of interest, as negotiated between the lender
and the borrower at origination. Adjustable-rate loans generally adjust on the
first business day of each calendar quarter based on a specified margin over the
lowest prime rate, as published in The Wall Street Journal. For loans made
pursuant to the Guaranteed Participant, Certified Lender or Preferred Lender
Programs, this margin generally does not exceed 2.75% per annum.
Terms to maturity for guaranteed loans vary depending upon the use of
proceeds and an evaluation of the borrower's ability to repay the loan. For
instance, working capital loans are limited to seven year terms unless an
extension is obtained, which can increase the term to a maximum of 10 years.
Real estate loans generally have terms up to 25 years, and machinery and
equipment loans generally have a maximum term of 15 years. If the loan proceeds
are to be used for multiple qualifying purposes, a blended term based on the
foregoing criteria may be offered by the Lender.
THE SELLERS' PARTICIPATION IN SBA SECTION 7(A) PROGRAM
The Sellers have been named as Preferred Lenders by the SBA in each major
SBA loan market in which they operate (except for newly established offices).
Based upon this experience, the Sellers expect to be upgraded to Preferred
Lender status in all markets where they now operate. However, it is unknown when
such upgradings will occur. See "The Sellers" herein.
THE SECTION 7(A) COMPANION PROGRAM
For most applications submitted between January 1, 1995 and October 12,
1995 the maximum loan size for most loans originated under the Section 7(a)
Program was reduced administratively to $500,000. To assist qualified borrowers
in obtaining more financing when needed, the Sellers introduced a program (the
"Section 7(a) Companion Program") pursuant to which TMSCMI originated a loan
(the "Section 7(a) Companion Loan") to the related borrower in situations in
which the total amount financed would otherwise exceed the current $500,000
limit. The maximum amount for a Section 7(a) Companion Loan currently is
approximately $800,000, which maximum may be increased where the Collateral or
LTV warrants it. Although Section 7(a) Companion Loans are not guaranteed by the
SBA, they are secured by a first lien on the related primary collateral, with
the Section 7(a) Loan being secured by a second lien on such collateral.
Section 7(a) Companion Loans may be utilized by a borrower for all eligible
Section 7(a) Loan purposes. Section 7(a) Companion Loans are originated only in
conjunction with a Seller obtaining an SBA guarantee of the companion Section
7(a) Loan under the Certified Lender Program (the SBA currently prohibits
Section 7(a) Companion Loans in connection with the Preferred Lender Program).
Section 7(a) Companion Loans bear interest and have terms to maturity as
described above under "--Section 7(a) Loan Parameters."
SBA 504 LOAN PROGRAM
The SBA 504 Loan Program was established to encourage lenders to provide
fixed asset financing to existing qualifying small businesses. SBA 504 Loans may
be used for plant acquisition, construction, renovation, expansion, land and
site improvements, acquisition and installation of machinery and equipment as
well as certain closing costs and professional fees and the interest on interim
financing. The lender provides approximately 50% of project costs in a
conventional loan agreement, with borrowers providing a minimum 10% equity
contribution. The SBA provides the remainder of the financing. Each SBA 504 Loan
must be approved by the SBA.
The funds used by the SBA to originate its portion of a project generated
pursuant to the SBA 504 Loan Program are obtained by issuing SBA-guaranteed
debentures on behalf of a certified development company (a "CDC"). A CDC is an
organization sponsored by private interests or by state or local governments.
The debentures are pooled monthly and sold through a certificate mechanism to
the public market. The SBA 504 Loans are not guaranteed by the SBA.
SBA 504 Loans bear interest and have terms to maturity as described above
under "--Section 7(a) Loan Parameters."
YIELD, MATURITY AND PREPAYMENT CONSIDERATIONS
The value of an investment in the Certificates may be affected by, among
other things, a change in interest rates. If interest rates fall below the then
current Note Rates on the SBA Loans, the rate of prepayment on such SBA Loans
may increase. Prepayments, delinquencies and defaults may also be influenced by
a number of other factors including economic conditions.
On each Remittance Date, the Certificateholders are entitled to receive 30
days' interest on the Class A or Class B Principal Balance, as the case may be,
immediately prior to such Remittance Date at the applicable Class A or Class B
Remittance Rate, subject to the adjustments described under "Description of the
Agreement and the Certificates--Class A and Class B Interest Distribution
Amounts" herein. This is the case even if Principal Prepayments or Curtailments
are received with respect to the SBA Loans during the related Due Period. With
respect to such Principal Prepayments and Curtailments the Servicer will remit
to the Trustee for deposit in the Certificate Account, from amounts otherwise
payable to it as servicing compensation, Compensating Interest as described
under "Description of the Agreement and the Certificates--Payments on the SBA
Loans; Distributions on the Certificates" herein.
For the Certificates, the net effect of each distribution respecting
interest generally will be the pass-through on each Remittance Date to each
Certificateholder of an amount which is equal to 30 days' interest at the Class
A or Class B Remittance Rate, as the case may be, subject to the adjustments
described herein.
The Excess Spread on the guaranteed portions of the SBA ss. 7(a) Loans will
be available to make up shortfalls in amounts to which Certificateholders are
entitled on Remittance Dates. The amount of Excess Spread varies from loan to
loan and will be eliminated when a borrower prepays a loan in full. However, the
Excess Spread will not be affected by any applicable lifetime interest rate caps
on the SBA ss. 7(a) Loans. This is because the Guaranteed Interests are sold
with lifetime interest rate caps equal to the cap on the related SBA ss. 7(a)
Loan less the sum of the Excess Spread, the fee payable to the Agent of the SBA,
the Premium Protection Fee and, with respect to the Additional Fee SBA Loans,
the Additional Fee. In addition, the Excess Spread on an SBA ss. 7(a) Loan in
default will be paid by the SBA until the purchase by the SBA of the related
Guaranteed Interest (up to 120 days of accrued interest).
With respect to SBA ss. 7(a) Loans for which the Guaranteed Interest was
sold in the secondary market on or after September 1, 1993 (unless the related
SBA ss. 7(a) Loan was approved by the SBA on or after October 12, 1995) and SBA
ss.7(a) Loans approved by the SBA on or after October 12, 1995, regardless of
whether they were sold in the Secondary Market (the "Additional Fee SBA Loans"),
a fee equal to 40 basis points and 50 basis points, respectively, per annum on
the outstanding balance of the Guaranteed Interest of such Additional Fee SBA
Loans (the "Additional Fee") is required to be paid by the related Seller to the
SBA. Although such Additional Fee is the responsibility of the related Seller,
the Additional Fee will be funded from the interest received by the related
Obligor. Accordingly, any such Additional Fee will reduce the Excess Spread on
the related SBA ss. 7(a) Loan.
Unscheduled payments, delinquencies, defaults on the SBA Loans and
distributions from the Pre- Funding Account, if any, on the Remittance Dates in
________, _________ and ______, 199__ and the Special Remittance Date will
affect the amount of funds available to make distributions on each Remittance
Date. In addition, the Servicer may, at its option, on any date on which the
then outstanding aggregate principal balance of the Unguaranteed Interests is
less than 10% of the sum of (i) the Original Pool Principal Balance and (ii) the
original Pre-Funded Amount, if any, purchase from the Trust Fund all of the
Unguaranteed Interests and any other assets in the Trust Fund at a price equal
to the sum of (x) 100% of the then outstanding Class A and Class B Principal
Balances, and (y) 30 days' interest thereon at the then applicable Class A and
Class B Remittance Rates (the "Termination Price"). See "Description of the
Agreement and the Certificates--Termination; Purchase of SBA Loans" herein.
However, because the SBA Loans may prepay, the weighted average life of the
Certificates or the date on which the outstanding aggregate principal balances
of the Unguaranteed Interests will be less than 10% of the sum of (i) the
Original Pool Principal Balance and (ii) the Original Pre-Funded Amount, if any,
cannot be determined.
None of the SBA Loans are balloon loans and each is fully amortizing in
accordance with its terms. The SBA Loans may be prepaid at any time without
payment of a prepayment fee or penalty. In general, when the level of prevailing
interest rates for similar loans significantly declines, the rate of prepayment
is likely to increase, although the prepayment rate is influenced by a number of
other factors, including general economic conditions. Prepayments, liquidations
and purchases of the Unguaranteed Interests will result in distributions to
Certificateholders of amounts which would otherwise be distributed over the
remaining terms of the SBA Loans.
The final scheduled Remittance Date for the Certificates is _________,
20__, which is the date on which the principal balances of the Class A and Class
B Certificates would be reduced to zero, assuming that no prepayments are
received on the SBA Loans and that distributions of principal of and interest on
each of the SBA Loans are timely received. The weighted average life of the
Certificates is likely to be shorter than would be the case if payments actually
made on the SBA Loans conformed to the foregoing assumptions, and the final
Remittance Date with respect to the Certificates could occur significantly
earlier than the final scheduled Remittance Date because (i) prepayments are
likely to occur and (ii) the Servicer may cause a termination of the Trust Fund
when the then outstanding aggregate principal balance of the Unguaranteed
Interests is less than 10% of the sum of (i) the Original Pool Principal Balance
and (ii) the Original Pre-Funded Amount, if any.
The "weighted average life" of a Certificate refers to the average amount
of time that will elapse from the Closing Date to the date on which each dollar
in respect of principal of such Certificate is repaid. The weighted average
lives of the Certificates will be influenced by, among other factors, the rate
at which principal payments (including Monthly Payments, Principal Prepayments,
Excess Payments and Curtailments) are made on the SBA Loans.
Prepayments on loans are commonly measured relative to a prepayment
standard or model. The model used in this Prospectus Supplement, the Constant
Prepayment Rate ("CPR"), represents an assumed constant rate of prepayment per
annum relative to the then outstanding principal balance of a pool of new SBA
loans. The CPR does not purport to be either a historical description of the
prepayment experience of any pool of SBA loans or a prediction of the
anticipated rate of prepayment of any pool of SBA loans, including the SBA
Loans.
The Sellers make no representation as to the particular factors that will
affect the prepayment of the SBA Loans, as to the percentage of the principal
balance of the SBA Loans that will be paid as of any date or as to the overall
rate of prepayment on the SBA Loans.
Greater than anticipated prepayments of principal will increase the yield
on Certificates purchased at a price less than par. Greater than anticipated
prepayments of principal will decrease the yield on Certificates purchased at a
price greater than par. The effect on an investor's yield due to principal
prepayments on the SBA Loans occurring at a rate that is faster (or slower) than
the rate anticipated by the investor in the period immediately following the
issuance of the Certificates will not be entirely offset by a subsequent like
reduction (or increase) in the rate of principal payments. The weighted average
lives of the Certificates will also be affected by the amount and timing of
delinquencies and defaults on the SBA Loans and the recoveries, if any, on
defaulted SBA Loans and foreclosed properties. Delinquencies and defaults will
generally slow the rate of payment of principal to the Certificateholders.
However, this effect will be offset to the extent that lump sum recoveries on
defaulted SBA Loans and foreclosed properties result in principal payments on
the Certificates faster than otherwise scheduled.
The following table under the heading "Weighted Average Lives of the Class
A and Class B Certificates" assumes, among other things, that (i) (a) the
scheduled payment in each month for each SBA Loan has been based on the
outstanding balance as of the first day of the month preceding the month of such
payment, (b) the initial Note Rate for the SBA Loans delivered at closing for
the ______ 199_ scheduled payments are _____% and _____% plus the applicable
Gross Margin and the initial Note Rates for the SBA Loans delivered at the
subsequent funding for the ______, 199__ Scheduled Payment are ___% and ___%,
respectively per the chart below and (c) thereafter, the scheduled payments and
remaining term to stated maturity for each SBA loan is as set forth below
(rather than based on the actual SBA Loan characteristics) so that such
scheduled payments would amortize the remaining balance by its stated maturity
date, (ii) scheduled monthly payments of principal and interest on the SBA Loans
will be timely received on the first day of each month (with no defaults),
commencing __________, 199_, (iii) the Servicer does not exercise its option to
purchase the Unguaranteed Interest and thereby cause a termination of the
Agreement, (iv) principal prepayments on the SBA Loans represent prepayments in
full of individual SBA Loans and will be received on the last day of each month
commencing __________, 199_ at the respective percentages of CPR set forth in
the table and (v) the Certificates will be issued on __________, 199_. The
following table also assumes that the Pre-Funding Account is established, the
original Pre-Funded Amount equals its maximum permitted amount and the entire
Pre-Funded Amount is used to purchase SBA ss. 7(a) Loans at the end of the
Pre-Funding Period.
Note Rate Gross Margin Balance Remaining Term
% % $
% % $
% % $
% % $
Based upon the foregoing assumptions, some or all of which are unlikely to
reflect actual experience, the following table indicates the projected weighted
average lives of each Class of Certificates at various CPRs. As used in the
table, 0% CPR indicates no Principal Prepayments, Curtailments or Excess
Payments. The Class A and Class B Certificates were priced assuming __% CPR. If
the entire Pre-Funded Amount were used to purchase Section 7(a) Companion Loans
and SBA 504 Loans, rather than SBA ss. 7(a) Loans, the weighted average lives of
the Class A and Class B Certificates would not differ materially.
<PAGE>
WEIGHTED AVERAGE LIVES OF THE CLASS A AND CLASS B CERTIFICATES
Weighted Earliest Retirement
Average at Servicer's
CPR Life (Years)(1) Option(2)
[ 0%]
[ 4%]
[ 8%]
[ 12%]
Since the individual characteristics of the SBA Loans will not correspond
to those assumed above, the actual weighted average lives and the earliest
retirement dates of the Certificates will vary from those of the underlying SBA
Loans even if any indicated CPR is met. In addition, there is no assurance that
Principal Prepayments, Curtailments or Excess Payments will occur, or, if they
do occur, that they will occur at a constant rate approximating any of the
indicated CPRs.
THE SELLERS
TMSIC and TMSCMI are New Jersey corporations, and wholly-owned subsidiaries
of The Money Store Inc. (the "Parent"). MSNY, a New York corporation, is a
wholly-owned subsidiary of TMSIC. TMSIC is headquartered in Sacramento,
California and began originating SBA ss. 7(a) Loans in 1979. TMSCMI is
headquartered in Sacramento, California and began originating SBA 504 Loans in
1994 and Section 7(a) Companion Loans in 1995. MSNY is headquartered in
Sacramento, California and began originating SBA ss. 7(a) Loans in 1980. MSNY
only originates SBA ss. 7(a) Loans to businesses located in the State of New
York. The Sellers became the largest originator of SBA guaranteed loans in 1983
and have maintained that position in each of the past __ SBA fiscal years. The
Sellers originated approximately $___ million of SBA Loans during calendar 199_
and, at December 31, 199_ and December 31, 199_, were servicing a portfolio of
SBA Loans aggregating approximately $___ billion and $___ billion, respectively.
The Parent, headquartered in Sacramento, California and Union, New Jersey,
is a publicly-owned financial services company engaged, through its operating
divisions, primarily in originating, servicing and selling consumer and
commercial loans. As of _____________, 19__, the Parent maintained ___ offices
in __ states, Puerto Rico and the District of Columbia through which it
conducted business in the following areas: (i) mortgage loans; (ii) SBA Loans;
(iii) government guaranteed student loans and (iv) automotive loans. The Parent,
through its subsidiaries, also originates loans partially insured by the Federal
Housing Administration under Title I of the National Housing Act.
At ___________, 199_, the Sellers originated SBA Loans through ___ sales
regions in __ states, comprising __ SBA Districts. The Sellers have originated
SBA Loans in approximately __ out of __ total SBA jurisdictions/field
territories. They possess PLP status in __ SBA jurisdictions and they possess
Guaranteed
- --------
(1) The weighted average life of a Certificate is determined by (i) multiplying
the amount of each payment of principal by the number of years from the
date of issuance to the related Remittance Date, (ii) summing the results,
and (iii) dividing the sum by the total principal distributions.
(2) Assuming early termination of the Trust Fund when the then outstanding
aggregate principal balance of the Unguaranteed Interests is less than 10%
of the sum of (i) the Original Pool Principal Balance and (ii) the original
Pre-Funded Amount, if any.
Participant Program ("GPP") status in an additional ___. For the year ended
December 31, 199_, the Sellers originated approximately __% of their SBA ss.
7(a) Loans under the Preferred Lender Program ("PLP"), with substantially all of
the remainder originated under the Certified Lender Program ("CLP"). New offices
originate under the GPP until approved within the SBA District. The Sellers
apply the same level of loan review and documentation for all loans, regardless
of the program under which they were originated. In the normal course of their
business, the Sellers may have originated CLP loans in areas where they were
Preferred Lenders due to specific eligibility requirements of the Section 7(a)
Program. The Sellers believe that such practice is common in the industry, that
the SBA is aware of it and has raised no objection thereto.
DELINQUENCY EXPERIENCE
The following table sets forth the Sellers' delinquency and charge-off
experience with respect to their portfolio of SBA Loans as of the dates
indicated. There can be no assurance, and no representation is made, that the
delinquency and charge-off experience with respect to the SBA Loans included in
the Trust Fund will be similar to that reflected in the table below. The Sellers
believe that the increase in net loan charge-offs as a percentage of their SBA
loan portfolio as of and for the years ended December 31, 199_, 199_ and 199_,
is primarily due to general adverse economic conditions. The Sellers commenced
originating Section 7(a) Companion Loans in January 1995 and SBA 504 Loans in
1994. Accordingly, no meaningful delinquency and charge-off experience exists
for these loans. There can be no assurance, and no representation is made, that
the delinquency and charge-off experience with respect to the Section 7(a)
Companion Loans and the SBA 504 Loans will be similar to that of the SBA ss.
7(a) Loans.
SBA LOAN DELINQUENCIES AND CHARGE-OFFS
(DOLLARS IN THOUSANDS)
As of and for the Years ________ Months Ended
Ended December 31, 199 _________, 199
---------------------------------- --------------
199 199 199
--- --- ---
30-59 days past due(1)........
60-89 days past due(1)........
90+ days past due(1)..........
Loans charged-off, net........
Loans charged-off, net, as a
percentage of the SBA
unguaranteed interests(2)...
SBA unguaranteed
interests(3)................
Total SBA Loan serviced
portfolio(4)................
- --------------------
(1) The delinquency percentages are calculated based upon the aggregate
guaranteed and unguaranteed interests of the SBA Loans which are delinquent
by the number of days indicated divided by total aggregate principal
balance of the guaranteed and unguaranteed interests of the SBA Loans
contained in the Sellers' SBA loan portfolio.
(2) The percentage of loan charge-offs is calculated based upon the dollar
amount of charge-offs divided by the dollar amount of the principal portion
of unguaranteed interests contained in the Sellers' SBA loan portfolio.
(3) Amounts shown are the aggregate principal balances of the unguaranteed
interests of loans in the Sellers' SBA loan portfolio on the last day of
the related period.
(4) Includes guaranteed interests serviced for others.
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CERTAIN LITIGATION
Because the nature of the business of the Parent and the Sellers involves
the collection of numerous accounts, the validity of liens and compliance with
state and federal lending laws, the Parent and the Sellers are subject to claims
and legal actions in the ordinary course of their business. While it is
impossible to estimate with certainty the ultimate legal and financial liability
with respect to such claims and actions, including that described above, the
Parent and the Sellers believe that the aggregate amount of such liabilities
will not result in monetary damage which in the aggregate would have a material
adverse effect on the financial condition of the Parent or the Sellers.
DESCRIPTION OF THE AGREEMENT AND THE CERTIFICATES
GENERAL
The Certificates will be issued by a Trust Fund organized and existing
under the laws of the State of New York. Each Certificate represents a certain
fractional undivided ownership interest in the Trust Fund created and held
pursuant to the Agreement, subject to the limits and the priority of
distribution described therein. The Trust Fund consists primarily of the right
to receive the Unguaranteed Interests in such SBA Loans as are from time to time
subject to the Agreement, together with all proceeds thereof and certain related
assets.
The Certificates will not represent obligations of the Sellers, any of
their affiliates or the SBA.
The Class A Certificates will be issued in book-entry form and the Class B
Certificates will be issued either in book-entry or physical form, as determined
by the Sellers prior to issuance of the Certificates. Each Class of Certificates
will be issued in minimum denominations of $1,000 and integral multiples of
$1,000 in excess thereof, except that one Certificate of each Class may be
issued in a different denomination, and, if so issued, will be held in physical
form.
The Servicer will be responsible for ensuring that each SBA Loan is
serviced in accordance with the Agreement and the SBA Rules and Regulations.
However, MSNY will service the SBA Loans originated or acquired by it.
PAYMENTS ON THE SBA LOANS; DISTRIBUTIONS ON THE CERTIFICATES
The Agreement requires that the Servicer cause an account (the "Principal
and Interest Account") to be established and maintained at one or more
Designated Depository Institutions.
All funds in the Principal and Interest Account are required to be held (i)
uninvested, up to the limits insured by the FDIC (as defined under "Certain
Definitions") or (ii) invested in Permitted Instruments. Any investment earnings
on funds held in the Principal and Interest Account are for the account of the
Servicer.
The Servicer is required to deposit in the Principal and Interest Account
(within two Business Days of receipt): (i) all payments received after the
Cut-Off Date on account of interest on the SBA Loans (net of the portion thereof
required to be paid to the holders of the Guaranteed Interest, the Agent of the
SBA's Fee, the Premium Protection Fee, the Additional Fee and the Servicing Fee
and other servicing compensation payable to the Servicer as permitted by the
Agreement), (ii) the Unguaranteed Percentage of all payments received after the
CutOff Date on account of principal on the SBA Loans, including the Unguaranteed
Percentage of all Excess Payments, Principal Prepayments, Curtailments, Net
Liquidation Proceeds, Insurance Proceeds (other than amounts to be applied to
the restoration or repair of the related Mortgaged Property, or to be released
to the Obligor) and Released Mortgaged Property Proceeds, (iii) any amounts paid
in connection with the repurchase of the Unguaranteed Interest of an SBA Loan
and the amount of any adjustment for substituted SBA Loans, (iv) the amount of
any losses incurred in connection with investments in Permitted Instruments and
(v) certain amounts relating to insufficient insurance policies and Foreclosed
Property.
The Servicer may make withdrawals from the Principal and Interest Account
only for the following purposes:
(i) to remit to the Trustee on each Determination Date (as defined
below) for deposit in the Certificate Account, the portion of the Available
Funds for the related Remittance Date that is net of Compensating Interest,
Monthly Advances and amounts then on deposit in the Spread Account (and,
with respect to the Determination Dates occurring in ______, _________ and
___________, net of amounts then on deposit in the Pre-Funding Account and
the Capitalized Interest Account);
(ii) to reimburse itself for any accrued unpaid Servicing Fees,
unreimbursed Monthly Advances and for unreimbursed Servicing Advances to
the extent deposited in the Principal and Interest Account (and not netted
from Monthly Payments received). The Servicer's right to reimburse itself
for unpaid Servicing Fees and, except as provided in the following
sentence, Servicing Advances and Monthly Advances shall be limited to
Liquidation Proceeds, Released Mortgaged Property Proceeds, Insurance
Proceeds and such other amounts as may be collected by the Servicer from
the Mortgagor or otherwise relating to the SBA Loan in respect of which
such unreimbursed amounts are owed. The Servicer's right to reimbursement
for Monthly Advances and Servicing Advances in excess of such amounts shall
be limited to any late collections of interest received on the SBA Loans
generally, including Liquidation Proceeds, Released Mortgaged Property
Proceeds, Insurance Proceeds and any other amounts. The Servicer's right
thereto shall be subordinate to the rights of the Certificateholders and
the holders of the Guaranteed Interest;
(iii) to withdraw any amount received from an Obligor that is
recoverable and sought to be recovered as a voidable preference by a
trustee in bankruptcy pursuant to the United States Bankruptcy Code in
accordance with a final, nonappealable order of a court having competent
jurisdiction;
(iv) (a) to make investments in Permitted Instruments and (b) to pay
itself interest paid in respect of Permitted Instruments or by a Designated
Depository Institution on funds deposited in the Principal and Interest
Account;
(v) to withdraw any funds deposited in the Principal and Interest
Account that were not required to be deposited therein or were deposited
therein in error;
(vi) to pay itself servicing compensation or interest as permitted
under the definition of Excess Proceeds; and
(vii) to clear and terminate the Principal and Interest Account upon
the termination of the Agreement;
Not later than the close of business on each Determination Date, the
Servicer will remit to the Trustee for deposit in the Certificate Account any
required Monthly Advance and/or Compensating Interest.
The Servicer is required to pay all reasonable and customary
"out-of-pocket" costs and expenses incurred in the performance of its servicing
obligations, including, but not limited to, the cost of (i) the preservation,
restoration and protection of the Mortgaged Property or other Collateral, (ii)
any enforcement or judicial proceedings, including foreclosures, and (iii) the
management and liquidation of Mortgaged Property acquired in satisfaction of the
related Mortgage. Each such expenditure will constitute a "Servicing Advance".
The Servicer is obligated to make the Servicing Advances incurred in the
performance of its servicing obligations. The Servicer may recover Servicing
Advances to the extent set forth in clause (ii) above.
On the 15th day of each month commencing in _______, 199_, or, if such 15th
day is not a Business Day, the first Business Day immediately following (each
such day being a "Remittance Date"), until the principal balances of the Class A
and Class B Certificates are reduced to zero, the Trustee or Paying Agent will
be required to distribute to each person in whose names a Certificate is
registered at the close of business on the last day of the month immediately
preceding the month of the related Remittance Date (the "Record Date") such
Certificateholder's Percentage Interest multiplied by the amount to be
distributed to the Class A or Class B Certificateholders, as the case may be on
such Remittance Date as described below under "--Flow of Funds" herein.
Additionally, any Pre-Funded Amount remaining at the close of business on
__________, 199_ (together with __ days' interest thereon at the applicable
Remittance Rates) will be distributed by or on behalf of the Trustee on the
Special Remittance Date to the Class A and Class B Certificates. Such
distribution will be made to each person in whose name a Certificate of the
applicable Class is registered on ___________, 199__.
On each Remittance Date, the Trustee will mail to each Certificateholder a
statement setting forth, among other things, certain information as to the
distribution being made on such Remittance Date, the fees to be paid to the
Servicer and Trustee and the loss and delinquency status of the SBA Loans.
Although the information contained in such statements will be prepared by the
Servicer, neither such information nor any other financial information furnished
to Certificateholders will be examined and reported upon, and an opinion will
not be expressed by, an independent public accountant.
CERTIFICATE ACCOUNT
The Trustee has agreed to establish and maintain in its trust department a
non-interest-bearing trust account (the "Certificate Account").
PRE-FUNDING ACCOUNT
If Section 7(a) Companion Loans and SBA 504 Loans are not included in the
Trust Fund on the Closing Date, the Pre-Funded Amount will be deposited on the
Closing Date into the Pre-Funding Account. Amounts in the Pre-Funding Account
may be used only (i) to acquire Subsequent SBA Loans, and (ii) to make
accelerated payments of principal on the Certificates. During the Funding Period
amounts will, from time to time, be withdrawn from the Pre-Funding Account to
purchase Subsequent SBA Loans in accordance with the Agreement. Any Pre-Funded
Amount remaining at the end of the Funding Period will be distributed as a
principal prepayment on the next Remittance Date to the Certificates. However,
any Pre-Funded Amount remaining at the close of business on ______________, 199_
will be distributed as a principal prepayment on the Special Remittance Date.
All funds in the Pre-Funding Account are required to be held (i)
uninvested, up to the limits insured by the Federal Deposit Insurance
Corporation or (ii) invested in instruments designated as "Permitted
Instruments" in the Agreement. Any investment earnings on funds in the
Pre-Funding Account will be applied to payment of interest on the Certificates.
CAPITALIZED INTEREST ACCOUNT
If the Pre-Funding Account is established, on the Closing Date, the
Representative also will make a cash deposit into the Capitalized Interest
Account. The amount, if any, deposited therein will be used by the Trustee on
the Remittance Dates occurring in ____________, ____________ and _________,
199__ to fund the excess, if any, of (i) the amount of interest accrued for each
such Remittance Date at the weighted average on the portion of the Class A and
Class B Certificates having principal balances exceeding the principal balances
of the Unguaranteed Interests, over (ii) the amount of any earnings on funds in
the Pre-Funding Account that are available to pay interest on the Certificates
on each such Remittance Date. Additionally, if a principal prepayment is made on
the Special Remittance Date to any Class of Certificates, such Class of
Certificates also will receive on such date, from the Capitalized Interest
Account, an amount equal to __ days' interest at the applicable Remittance Rate
on the amount of such principal prepayment. Any amounts remaining in the
Capitalized Interest Account on the Special Remittance Date and not used for
such purposes are required to be paid directly to the Representative on such
Special Remittance Date.
All funds in the Capitalized Interest Account are required to be held (i)
uninvested, up to the limits insured by the Federal Deposit Insurance
Corporation or (ii) invested in Permitted Instruments. Any investment earnings
on funds in the Capitalized Interest Account will be applied to payment of
interest on the Certificates.
FLOW OF FUNDS
The Agreement requires the Servicer to withdraw on each Determination Date
that portion of the Available Funds in the Principal and Interest Account and to
remit such amount together with the Monthly Advances and Compensating Interest
for the related Remittance Date to the Trustee for deposit in the Certificate
Account. Upon receipt on each Determination Date of such amount, the Trustee is
required to deposit such amount into the Certificate Account.
On each Remittance Date the Trustee is required to withdraw from the
Certificate Account the sum of (i) that portion of the Available Funds received
from the Servicer, and (ii) the amounts, if any, deposited therein from the
Spread Account as described below under "--Spread Account" herein, and (iii)
with respect to the Remittance Dates in _________, __________ and __________
199_, the amounts, if any, deposited therein from the Pre-Funding Account and
the Capitalized Interest Account, and make distributions thereof in the
following order of priority:
(i) First, to the Class A Certificates in an amount up to the Class A
Interest Distribution Amount;
(ii) Second, to the Class B Certificates in an amount up to the Class
B Interest Distribution Amount;
(iii) Third, to the Class A Certificates in an amount up to the sum of
(a) the Class A Principal Distribution Amount and (b) the Class A Carry
Forward Amount;
(iv) Fourth, to the Class B Certificates, in an amount up to the sum
of (a) the Class B Principal Distribution Amount and (b) the Class B
Carry-Forward Amount;
(v) Fifth, to the Expense Account in an amount up to one-twelfth of
the Annual Expense Escrow Amount plus any amount required to be paid to the
Trustee pursuant to the Agreement resulting from insufficiencies in the
Expense Account;
(vi) Sixth, to the Servicer in an amount up to the Reimbursable
Amounts;
(vii) Seventh, to the Spread Account, any remainder unless and until
the amount therein equals the Specified Spread Account Requirement; and
(viii) Eighth, to the Spread Account Depositor, any amounts in excess
of the Specified Spread Account Requirement.
CLASS A AND CLASS B INTEREST DISTRIBUTION AMOUNTS
To the extent of the Available Funds, and prior to payments of principal,
on each Remittance Date the Class A and Class B Certificateholders, in that
order, will be entitled to receive interest accrued for the related Interest
Accrual Period at the then applicable Class A or Class B Remittance Rate on the
Class A or Class B Principal Balance, as the case may be, outstanding
immediately prior to such Remittance Date, subject to the adjustment set forth
in the next paragraph. If, on any Remittance Date, the Class A or Class B
Certificates do not receive the full amount of interest to which they are
entitled, such shortfall, plus interest thereon at the then applicable Class A
or Class B Remittance Rate, compounded monthly, will be added to the amount of
interest they are entitled to receive on succeeding Remittance Dates. The
aggregate amounts of interest payable to the Class A and Class B Certificates on
each Remittance Date are referred to herein as the "Class A Interest
Distribution Amount" and the "Class B Interest Distribution Amount"
respectively.
As stated herein, many of the SBA Loans contain minimum and/or maximum Note
Rate provisions. As a result, if the then current Prime Rate plus the applicable
margin would exceed the applicable maximum Note Rate (or fall below the
applicable minimum Note Rate), the actual Note Rate borne by such SBA Loan will
be less than (or greater than) the Note Rate that such SBA Loan would bear if
such limits were not in effect. Additionally, as described under "Summary of
Terms -- Interest", for the Remittance Dates occurring in each February, May,
August and November, interest accruing on the Class A and Class B Certificates
will be based upon the Prime Rate in effect on the first Business Day of the
preceding January, April, July and October, respectively, while interest
payments on the SBA Loans adjusting quarterly required to be distributed on such
Remittance Dates generally will be based on the Prime Rate in effect on the
first Business Day of the preceding October, January, April and July,
respectively. Accordingly, for each Remittance Date the aggregate amount of
interest payable with respect to each of the SBA Loans in accordance with their
terms, net of the interest payable to the holders of the Guaranteed Interest,
the Excess Spread (other than the portion thereof allocated to the Servicing Fee
on the Guaranteed Interest), the Servicing Fee, the Premium Protection Fee, the
Agent of the SBA's Fee, the Additional Fee (with respect to the Additional Fee
SBA Loans), the Extra Interest (as defined below) and the fees and expenses of
the Trustee allocable to such interest, might exceed or be less than the
interest accrued on the SBA Loans at the weighted average Class A and Class B
Remittance Rates. Any such excess or shortfall will be allocated to the Class A
and Class B Certificates pro rata in accordance with the amount of interest each
such Class of Certificates would otherwise be entitled to receive but for such
adjustment.
With respect to each SBA Loan, the "Extra Interest Percentage" will equal
the excess of (i) the Note Rate that would be in effect for such SBA Loan as of
the Cut-Off Date (or Subsequent Cut-Off Date) without giving effect to any
applicable lifetime floor or cap over (ii) the sum of the rates used in
determining the Servicing Fee and the Trustee's fees and expenses and the
initial weighted average Class A and Class B Remittance Rates without giving
effect to any applicable lifetime floor or cap.
For each Remittance Date, the "Extra Interest" for an SBA Loan will equal
the product of (i) the principal portion of the Unguaranteed Interest of such
SBA Loan for such Remittance Date and (ii) one-twelfth of the applicable Extra
Interest Percentage.
CLASS A AND CLASS B PRINCIPAL DISTRIBUTION AMOUNTS
With respect to each Remittance Date, the "Class A Principal Distribution
Amount" and the "Class B Principal Distribution Amount" will equal the Class A
Percentage or the Class B Percentage, as the case may be, multiplied by the
total of (i) the Unguaranteed Percentage of all payments and other recoveries of
principal of an SBA Loan (net of amounts reimbursable to the Servicer pursuant
to the Agreement) received by the Servicer or any Subservicer during the related
Due Period, excluding amounts received with respect to SBA Loans which have been
delinquent 24 months or have been determined to be uncollectible, in whole or in
part, by the Servicer to the extent that the Class A Certificateholders or the
Class B Certificateholders, as the case may be, have previously received the
Class A Percentage or the Class B Percentage, as the case may be, of the
principal portion of the Unguaranteed Interest of such SBA Loans; (ii) the
principal portion of any Unguaranteed Interest actually purchased by a Seller
for breach of a representation and warranty or other defect and actually
received by the Trustee as of the related Determination Date; (iii) any
adjustments with respect to substitutions of SBA Loans for which a Seller has
breached a representation or warranty deposited in the Principal and Interest
Account and transferred to the Certificate Account as of the related
Determination Date; (iv) the Unguaranteed Percentage of all losses on SBA Loans
which were finally liquidated during the applicable Due Period; (v) the
Unguaranteed Percentage of the then outstanding principal balance of any SBA
Loan which, as of the first day of the related Due Period, is delinquent 24
months or determined by the Servicer to be uncollectible in whole or in part;
and (vi) amounts, if any, released from the Pre-Funding Account on the _______,
_______ and _________ 199_ Remittance Dates.
The following chart sets forth an example of distributions on the
Certificates, based upon the assumption that the Certificates will be issued in
June 199_ with a May 31, 199_ Cut-Off Date and that distributions on the
Certificates are made on the 15th day of each month (or, if such 15th day is not
a Business Day, the next succeeding Business Day):
May 31 ................. Cut-Off Date. The Original Pool Principal Balance
will be the aggregate principal amount of the
Unguaranteed Interests of the SBA Loans at the close
of business on May 31, 199_ after application of all
payments collected on or before such date.
June 1-30.............. The Subservicers remit to the Servicer for deposit
in the Principal and Interest Account all amounts
received on account of the Unguaranteed Interests of
the SBA Loans.
June 30................. First Record Date. Distribution on July 15, 199_
will be made to Certificateholders of record on the
Closing Date. Subsequent record dates will be the
last day of the month preceding the Remittance Date.
July __ ................ Determination Date. The Servicer determines the
amount of principal and interest that will be
distributed to the Certificateholders on July 15,
and transfers funds in the Principal and Interest
Account to the Trustee for deposit in the
Certificate Account together with any Monthly
Advances, Compensating Interest and, to the extent
necessary, amounts from the Spread Account.
July 15................. Remittance Date. The Trustee or the Paying Agent
will distribute to Certificateholders the amounts
required to be distributed pursuant to the
Agreement.
SPREAD ACCOUNT
On the Closing Date, the Spread Account Depositor will make an initial cash
deposit into the Spread Account in an amount equal to ___% of the Original Pool
Principal Balance (the "Initial Deposit"). Thereafter, on each Remittance Date
the Trustee will deposit into the Spread Account the Available Funds, if any,
remaining after payment of interest and principal to the holders of the
Certificates, amounts required to be deposited into the Expense Account and
certain amounts reimbursable to the Servicer, each as described above, until the
aggregate amount then on deposit in the Spread Account (the "Spread Balance")
equals the sum of (i) the then outstanding principal balance of the Unguaranteed
Interests of all SBA Loans 180 days or more delinquent and (ii) the greater of
(a) ___% of the then outstanding aggregate principal balance of the Unguaranteed
Interests of all the SBA Loans, or (b) the amount of the Initial Deposit;
provided, however, that for purposes of clauses (i) and (ii)(a), there shall be
excluded the principal portion of the Unguaranteed Interest of SBA Loans which
have been delinquent 24 months or have been determined to be uncollectible, in
whole or in part, by the Servicer, to the extent that the Certificateholders
have previously received the Unguaranteed Portion of the principal balance of
such SBA Loans (the sum of such amounts is referred to herein as the "Specified
Spread Account Requirement").
On each Remittance Date, to the extent funds are available therefor, the
Trustee will withdraw from the Spread Account for deposit into the Certificate
Account the amount, if any, by which (i) the sum of (a) the Class A and Class B
Interest Distribution Amounts, (b) the Class A and Class B Principal
Distribution Amounts and (c) the Class A and Class B Carry-Forward Amounts
exceeds (ii) the Available Funds for such Remittance Date (but excluding from
such definition, amounts in the Spread Account).
The Spread Account Depositor will not be required to refund any amounts
previously properly distributed to it, regardless of whether there are
sufficient funds on a subsequent Remittance Date to make a full distribution to
holders of the Certificates on such Remittance Date.
The funding and maintenance of the Spread Account is intended to enhance
the likelihood of timely payment of principal and interest to the holders of the
Certificates; however, if the SBA Loan Pool experiences levels of delinquencies
and losses above the scenarios used to obtain the ratings on the Class B
Certificates, the Spread Account could be depleted, and shortfalls could result.
See "Ratings" herein.
MONTHLY ADVANCES
The Servicer is required to remit to the Trustee no later than the
Determination Date for deposit in the Certificate Account the amount the Monthly
Advance, if any, by which (i) 30 days' interest at a rate equal to the then
applicable weighted average Class A and Class B Remittance Rates plus the
Adjusted SBA Loan Remittance Rate on the aggregate Class A and Class B Principal
Balances immediately prior to the related Remittance Date (as the amount
calculated pursuant to this clause (i) may be adjusted in accordance with the
limits described under "Description of the Agreement and the Certificates--Class
A and Class B Interest Distribution Amounts" herein) exceeds (ii) the amount
received by the Servicer as of the related Record Date in respect of interest on
the SBA Loans minus the interest payable to the holders of the Guaranteed
Interest, the Additional Fee, the Premium Protection Fee, and the fee payable to
the Agent of the SBA (plus, for the Remittance Dates in _________, _________,
__________ and _________, 199__, the sum of (a) all funds to be transferred to
the Certificate Account from the Capitalized Interest Account for such
Remittance Date and (b) certain investment earnings on amounts in the
Pre-Funding Account for the applicable Remittance Date). The Servicer is
not required to make Monthly Advances which it determines, in good faith,
would be nonrecoverable from amounts received in respect of the SBA Loans.
Monthly Advances are reimbursable in the first instance from late
collections of interest, Liquidation Proceeds, Insurance Proceeds and proceeds
received by the Servicer in connection with condemnation, eminent domain or a
release of lien ("Released Mortgaged Property Proceeds") collected with respect
to the related SBA Loan as to which the Monthly Advances were made. The
Servicer's right to reimbursement for such advances in excess of such amounts is
limited to late collections of interest received on the SBA Loans generally;
provided, however, that the Servicer's right to such reimbursement is
subordinate to the rights of the Certificateholders, the holder of the Premium
Protection Fee and the holders of the Guaranteed Interest. Monthly Advances are
intended to provide sufficient funds for the payment of interest to the
Certificateholders at the then applicable Class A or Class B Remittance Rate,
plus an additional amount, if any, required to pay the fees and expenses of the
Trustee.
COMPENSATING INTEREST
Not later than each Determination Date, with respect to each SBA Loan as to
which a principal prepayment in full or a Curtailment was received during the
related Due Period, the Servicer is required to remit to the Trustee, from
amounts otherwise payable to the Servicer as servicing compensation, an amount
("Compensating Interest") equal to any excess of (a) 30 days' interest on the
Unguaranteed Percentage of the related principal balance at the Adjusted SBA
Loan Remittance Rate over (b) that portion of the amount of interest actually
received in respect of the related SBA Loan during such Due Period and available
to be paid to the Certificateholders.
[THE GUARANTY
As additional credit support for the Class _ Certificates, the Class _
Certificateholders are entitled to receive on each Remittance Date the amount
equal to the Guaranty Payment, if any, under the Guaranty. The "Guaranty
Payment" for any Remittance Date will equal the difference, if any, between the
sum of the Class _ Interest Distribution Amount and the Class _ Principal
Distribution Amount for such Remittance and the portion of the Available Funds
allocated to the Class _ Certificates on such Remittance Date, but no more than
$___________ in the aggregate.
The Guaranty will be an unsecured general obligation of The Money Store
Inc. and will not be supported by any letter of credit or other credit
enhancement arrangement. The Guaranty will not benefit in any way, or result in
any payment to, the Class _ Certificateholders.
As compensation for providing the Guaranty, The Money Store Inc. will be
entitled to receive a fee (the "Guaranty Fee" equal to ________).]
REGISTRATION OF CERTIFICATES
The Class A Certificates will initially be registered in the name of Cede,
the nominee of DTC. The Class B Certificates will be either (i) registered in
the name of Cede, as the nominee of DTC, with similar effect as the Class A
Certificates, or (ii) issued in physical form, as determined by the Sellers
prior to the initial issuance of the Certificates. Certificates registered in
the name of Cede are referred to herein as the "Book-entry Certificates."
Persons acquiring beneficial ownership interests in the Class A or Class B
Certificates ("Certificate Owners") will hold their Class A or Class B
Certificates through DTC in the United States, or CEDEL or Euroclear (in Europe)
if they are participants of such systems, or indirectly through organizations
which are participants in such systems. The Book-Entry Certificates will be
issued in one or more certificates which equal the aggregate principal balance
of the respective Class of Certificates. CEDEL and Euroclear will hold omnibus
positions on behalf of their participants through customers' securities accounts
in CEDEL's and Euroclear's names on the books of their respective depositaries
which in turn will hold such positions in customers' securities accounts in the
depositaries' names on the books of DTC. [___________] will act as depositary
for CEDEL and Morgan Guaranty Trust Company of New York, Brussels Office, will
act as depositary for Euroclear (in such capacities, individually the "Relevant
Depositary" and collectively the "European Depositaries").
Because of time zone differences, credits of securities received in CEDEL
or Euroclear as a result of a transaction with a Participant will be made during
subsequent securities settlement processing and dated the business day following
the DTC settlement date. Such credits or any transactions in such securities
settled during such processing will be reported to the relevant Euroclear or
CEDEL Participants on such business day. Cash received in CEDEL or Euroclear as
a result of sales of securities by or through a CEDEL Participant (as defined
below) or Euroclear Participant (as defined below) to a DTC Participant will be
received with value on the DTC settlement date but will be available in the
relevant CEDEL or Euroclear cash account only as of the business day following
settlement in DTC. For information with respect to tax documentation procedures
relating to the Certificates, see "GLOBAL CLEARANCE, SETTLEMENT AND TAX
DOCUMENTATION PROCEDURES-- Certain U.S. Federal Income Tax Documentation
Requirements" in Annex I hereto.
Transfers between Participants will occur in accordance with DTC rules.
Transfers between CEDEL Participants and Euroclear Participants will occur in
accordance with their respective rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through CEDEL
Participants or Euroclear Participants, on the other, will be effected in DTC in
accordance with DTC rules on behalf of the relevant European international
clearing system by the Relevant Depositary; however, such cross market
transactions will require delivery of instructions to the relevant European
international clearing system by the counterparty in such system in accordance
with its rules and procedures and within its established deadlines (European
time). The relevant European international clearing system will, if the
transaction meets its settlement requirements, deliver instructions to the
Relevant Depositary to take action to effect final settlement on its behalf by
delivering or receiving securities in DTC, and making or receiving payment in
accordance with normal procedures for same day funds settlement applicable to
DTC. CEDEL Participants and Euroclear Participants may not deliver instructions
directly to the European Depositaries.
DTC, which is a New York-chartered limited purpose trust company, performs
services for its participants, some of which (and/or their representatives) own
DTC. In accordance with its normal procedures, DTC is expected to record the
positions held by each DTC participant in the Book-Entry Certificates, whether
held for its own account or as a nominee for another person. In general,
beneficial ownership of Book-Entry Certificates will be subject to the rules,
regulations and procedures governing DTC and DTC participants as in effect from
time to time.
CEDEL is incorporated under the laws of Luxembourg as a professional
depository. CEDEL holds securities for its participating organizations ("CEDEL
Participants") and facilitates the clearance and settlement of securities
transactions between CEDEL Participants through electronic book-entry changes in
accounts of CEDEL Participants, thereby eliminating the need for physical
movement of certificates. Transactions may be settled in CEDEL in any of 28
currencies, including United States dollars. CEDEL provides to its CEDEL
Participants, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. CEDEL interfaces with domestic markets in several
countries. As a professional depository, CEDEL is subject to regulation by the
Luxembourg Monetary Institute. CEDEL Participants are recognized financial
institutions around the world, including underwriters, securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations. Indirect access to CEDEL is also available to others, such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a CEDEL Participant, either directly or indirectly.
Euroclear was created in 1968 to hold securities for its participants
("Euroclear Participants") and to clear and settle transactions between
Euroclear Participants through simultaneous electronic book-entry delivery
against payment, thereby eliminating the need for physical movement of
certificates and any risk from lack of simultaneous transfers of securities and
cash. Transactions may be settled in any of 32 currencies, including United
States dollars. Euroclear includes various other services, including securities
lending and borrowing and interfaces with domestic markets in several countries
generally similar to the arrangements for cross-market transfers with DTC
described above. Euroclear is operated by the Brussels, Belgium office of Morgan
Guaranty Trust Company of New York (the "Euroclear Operator"), under contract
with Euroclear Clearance Systems S.C., a Belgian cooperative corporation (the
"Cooperative"). All operations are conducted by the Euroclear Operator, and all
Euroclear securities clearance accounts and Euroclear cash accounts are accounts
with the Euroclear Operator, not the Cooperative. The Cooperative establishes
policy for Euroclear on behalf of Euroclear Participants. Euroclear Participants
include banks (including central banks), securities brokers and dealers and
other professional financial intermediaries. Indirect access to Euroclear is
also available to other firms that clear through or maintain a custodial
relationship with a Euroclear Participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System and applicable Belgian law
(collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within Euroclear, withdrawals of securities and
cash from Euroclear, and receipts of payments with respect to securities in
Euroclear. All securities in Euroclear are held on a fungible basis without
attribution of specific certificates to specific securities clearance accounts.
The Euroclear Operator acts under the Terms and Conditions only on behalf of
Euroclear Participants, and has no record of or relationship with persons
holding through Euroclear Participants.
Under a book-entry format, beneficial owners of the Book-Entry Certificates
may experience some delay in their receipt of payments, since such payments will
be forwarded by the Trustee to Cede. Distributions with respect to Certificates
held through CEDEL or Euroclear will be credited to the cash accounts of CEDEL
Participants or Euroclear Participants in accordance with the relevant system's
rules and procedures, to the extent received by the Relevant Depositary. Such
distributions will be subject to tax reporting in accordance with relevant
United States tax laws and regulations. Because DTC can only act on behalf of
Financial Intermediaries, the ability of a beneficial owner to pledge Book-Entry
Certificates to persons or entities that do not participate in the Depository
system, or otherwise take actions in respect of such Book-Entry Certificates,
may be limited due to the lack of physical certificates for such Book-Entry
Certificates. In addition, issuance of the Book-Entry Certificates in book-entry
form may reduce the liquidity of such Certificates in the secondary market since
certain potential investors may be unwilling to purchase Certificates for which
they cannot obtain physical certificates.
DTC has advised the Trustee that DTC will take any action permitted to be
taken by the holders of the Book-Entry Certificates under the Agreement only at
the direction of one or more Financial Intermediaries to whose DTC accounts the
Book-Entry Certificates are credited, to the extent that such actions are taken
on behalf of Financial Intermediaries whose holdings include such Book-Entry
Certificates, CEDEL or the Euroclear Operator, as the case may be, will take any
other action permitted to be taken by a Certificateholder under the Agreement on
behalf of a CEDEL. Participant or Euroclear Participant only in accordance with
its relevant rules and procedures and subject to the ability of the Relevant
Depositary to effect such actions on its behalf through DTC. DTC may take
actions, at the direction of the related Participants, with respect to some
Class A or Class B Certificates which conflict with actions taken with respect
to other Class A or Class B Certificates.
Certificates Registered Through DTC. DTC is a limited-purpose trust company
organized under the laws of the State of New York, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of the New York
Uniform Commercial Code, and a "clearing agency" registered pursuant to the
provisions of Section 17A of the 1934 Act. See "Description of the Certificates
- -- Book-Entry Registration" in the Prospectus.
Certificates Not Registered through DTC. With respect to (i) any
Certificate not originally registered through DTC, or (ii) any Definitive
Certificate issued in exchange for a Book-Entry Certificate in connection with
the events described above (together, "Physical Certificates"), the Trustee will
be required to make payments and furnish reports directly to the related
Certificateholder.
If (i) any mutilated Physical Certificate is surrendered to the Certificate
Registrar (as defined under "Certain Definitions"), or the Trustee and the
Certificate Registrar receive satisfactory evidence of the destruction, loss or
theft of any Physical Certificate, and (ii) there is delivered to the Servicer,
the Trustee and the Certificate Registrar such security or indemnity as may be
required by each of them to save each of them harmless, then, in the absence of
notice to the Servicer, the Trustee and the Certificate Registrar that such
Physical Certificate has been acquired by a bona fide purchaser, the Servicer
shall execute and deliver, and the Trustee shall authenticate, in exchange for
or in lieu of any such mutilated, destroyed, lost or stolen Physical
Certificate, a new Physical Certificate of like tenor and Percentage Interest,
but bearing a number not contemporaneously outstanding. Upon the issuance of any
such new Physical Certificate, the Servicer and the Trustee may require the
payment of a sum sufficient to cover any tax or other governmental charge that
may be imposed in relation thereto and any other expenses connected therewith.
Any such duplicate Physical Certificate shall constitute complete and
indefeasible evidence of ownership in the Trust Fund, as if originally issued,
whether or not the mutilated, destroyed, lost or stolen Physical Certificate
shall be found at any time.
Physical Certificates will be transferable and exchangeable at the
corporate trust office of the Trustee or, at the election of the Trustee, at the
office of the Certificate Registrar. No service charge will be made for any
registration of exchange or transfer, but the Trustee may require payment of a
sum sufficient to cover any tax or other governmental charge.
Prior to due presentation of a Physical Certificate for registration of
transfer, the Servicer, the Trustee, the Sellers, the Paying Agent and the
Certificate Registrar may treat the Person in whose name any Physical
Certificate is registered as the owner of such Physical Certificate for the
purpose of receiving distributions with respect to such Certificate and for all
other purposes whatsoever, and the Servicer, the Trustee, the Seller and the
Certificate Registrar shall not be affected by notice to the contrary.
All Physical Certificates surrendered for registration of transfer or
exchange are required, if surrendered to any Person other than the Trustee, to
be delivered to the Trustee and to be promptly canceled by it. No Physical
Certificate is to be authenticated in lieu of or in exchange for any Physical
Certificate so canceled, except as expressly permitted by the Agreement. All
canceled Certificates may be held by the Trustee in accordance with its standard
retention policy.
REMOVAL AND RESIGNATION OF SERVICER
The Majority Certificateholders, by notice in writing to the Servicer, may,
pursuant to the Agreement, remove the Servicer upon the occurrence of any of the
following events:
(i) (A) the failure by the Servicer to make any required Servicing
Advance, to the extent such failure materially or adversely affects the
interests of the Certificateholders; (B) the failure by the Servicer to
make any required Monthly Advance; (C) the failure by the Servicer to remit
any Compensating Interest; or (D) any failure by the Servicer to remit to
Certificateholders, or to the Trustee for the benefit of the
Certificateholders, any payment required to be made under the terms of the
Agreement, which continues unremedied (in the case of the events described
in clauses (i)(A), (i)(C) and (i)(D) for 30 days) after the date upon which
written notice of such failure, requiring the same to be remedied, shall
have been given to the Servicer by the Trustee or to the Servicer and the
Trustee by any Certificateholder; or
(ii) failure by the Servicer or the Sellers duly to observe or
perform, in any material respect, any other covenants, obligations or
agreements of the Servicer or the Sellers, as set forth in the Agreement,
which failure continues unremedied for a period of 60 days after the date
on which written notice of such failure, requiring the same to be remedied,
shall have been given to the Servicer or the Sellers, as the case may be,
by the Trustee or to the Servicer, or the Sellers, as the case may be, and
the Trustee by any Certificateholder; or
(iii) a decree or order of a court or agency or supervisory authority
having jurisdiction for the appointment of a conservator or receiver or
liquidator in any insolvency, readjustment of debt, marshaling of assets
and liabilities or similar proceedings, or for the winding-up or
liquidation of its affairs, shall have been entered against the Servicer
and such decree or order shall have remained in force, undischarged or
unstayed for a period of 60 days; or
(iv) the Servicer shall consent to the appointment of a conservator or
receiver or liquidator in any insolvency, readjustment of debt, marshaling
of assets and liabilities or similar proceedings of or relating to the
Servicer or of or relating to all or substantially all of the Servicer's
property; or
(v) the Servicer shall admit in writing its inability to pay its debts
as they become due, file a petition to take advantage of any applicable
insolvency or reorganization statute, make an assignment for the benefit of
its creditors, or voluntarily suspend payment of its obligations.
The Servicer may not assign the Agreement nor resign from the obligations
and duties thereby imposed on it except by mutual consent of the Servicer, the
SBA, the Trustee and the Majority Certificateholders, or upon the determination
that the Servicer's duties thereunder are no longer permissible under applicable
law or administrative determination and such incapacity cannot be cured by the
Servicer. No such resignation shall become effective until a successor has
assumed the Servicer's responsibilities and obligations in accordance with the
Agreement.
Upon removal or resignation of the Servicer, the Trustee will be the
successor servicer (the "Successor Servicer"). If, however, the Trustee is
unable to act as Successor Servicer, or if the SBA so requests, the Trustee may
appoint, or petition a court of competent jurisdiction to appoint, any
established mortgage loan servicing institution acceptable to the SBA, [Moody's]
and [Duff & Phelps] having a net worth of not less than $15,000,000 and which is
an approved SBA guaranteed lender in good standing, operating pursuant to an
effective Loan Guaranty Agreement as the Successor Servicer in the assumption of
all or any part of the responsibilities, duties or liabilities of the Servicer.
TERMINATION; PURCHASE OF SBA LOANS
The Agreement will terminate upon notice to the Trustee of the earlier of
either: (a) the final payment or other liquidation of the last SBA Loan, or the
disposition of all property acquired upon foreclosure of any SBA Loan and the
remittance of all funds due thereunder or (b) mutual consent of the Servicer and
all Certificateholders in writing; provided, however, that in no event will the
trust established by the Agreement terminate later than twenty-one years after
the death of the last surviving lineal descendant of Joseph P. Kennedy, late
Ambassador of the United States to the Court of St. James, alive as of the
Cut-Off Date.
The Servicer may, at its option, terminate the Agreement on any date on
which the then outstanding aggregate principal balance of the Unguaranteed
Interests is less than 10% of the sum of (i) the Original Pool Principal Balance
and (ii) the Original Pre-Funded Amount by purchasing, on the next succeeding
Remittance Date, all of the Unguaranteed Interests and any other assets in the
Trust Fund at a price equal to the sum of (i) 100% of the then Outstanding Class
A and Class B Principal Balances, and (ii) 30 days' accrued interest thereon at
the then applicable Class A and Class B Remittance Rates (the "Termination
Price"); provided, however, that under certain circumstances set forth in the
Agreement, the Servicer may not take such action prior to providing [Moody's]
and [Duff & Phelps] with an opinion of counsel that such termination would not
be deemed a fraudulent conveyance by the Servicer.
THE TRUSTEE
[Name of Trustee], a ___________ located in _____________________, has been
named Trustee pursuant to the Agreement.
The Agreement requires that the Trustee shall at all times be (i) a
national banking association or banking corporation or trust company organized
and doing business under the laws of the United States of America or of any
State, (ii) authorized under such laws to exercise corporate trust powers, (iii)
having a combined guaranteed capital and surplus of at least $30,000,000, (iv)
having unsecured and unguaranteed long-term debt obligations rated at least Baa3
by [Moody's] and BBB- by [Duff & Phelps] (provided [Duff & Phelps] is rating the
unsecured and unguaranteed long-term debt obligations of the Trustee), or such
other ratings as is acceptable to the SBA, (v) is subject to supervision or
examination by a federal or state authority, (vi) is an approved SBA guaranteed
lender in good standing, operating pursuant to an effective Loan Guaranty
Agreement, and (vii) is reasonably acceptable to the SBA. If at any time the
Trustee shall cease to be eligible in accordance with the provisions described
in this paragraph, it shall resign upon request of the Majority
Certificateholders in the manner and with the effect specified in the Agreement.
The Trustee, or any trustee or trustees hereafter appointed, may resign at
any time in the manner set forth in the Agreement. Upon receiving notice of
resignation, the Servicer shall promptly appoint a successor trustee or trustees
meeting the eligibility requirements set forth above in the manner set forth in
the Agreement. If no successor trustee shall have been appointed and have
accepted appointment within 60 days after the giving of such notice of
resignation, the resigning trustee may petition any court of competent
jurisdiction for the appointment of a successor trustee. Such court may
thereupon, after such notice, if any, as it may deem proper and prescribe,
appoint a successor trustee.
No resignation or removal of the Trustee and no appointment of a successor
trustee shall become effective until the acceptance of appointment by a
successor trustee.
The Majority Certificateholders with the consent of the SBA, [Moody's] and
[Duff & Phelps], or the SBA, may remove the Trustee under the conditions set
forth in the Agreement and appoint a successor trustee in the manner set forth
therein.
The Servicer shall give notice of each removal of the Trustee to the
Certificateholders, which notice shall include the name of the successor trustee
and the address of its corporate trust office.
Upon acceptance of appointment by a successor trustee in the manner
provided in the Agreement, the Servicer shall give notice thereof to the
Certificateholders.
At any time, for the purpose of meeting any legal requirements of any
jurisdiction in which any part of the Trust Fund or property securing the same
may at the time be located, the Servicer and the Trustee acting jointly shall
have the power and shall execute and deliver all instruments to appoint one or
more Persons approved by the Trustee to act as co-trustee or co-trustees,
jointly with the Trustee, or separate trustee or separate trustees, of all or
any part of the Trust Fund, and to vest in such Person or Persons, in such
capacity, such title to the Trust Fund, or any part thereof, and, subject to the
provisions of the Agreement, such powers, duties, obligations, rights and trusts
as the Servicer and the Trustee may consider necessary or desirable.
Neither the Trustee, its authorized agent(s) nor representative(s) will
conduct an independent review and assessment on whether SBA Loans should be
foreclosed or the underlying property should be liquidated when a default has
occurred with respect thereto.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion represents the opinion of Stroock & Stroock &
Lavan LLP, special federal tax counsel ("Federal Tax Counsel"), as to the
anticipated material federal income tax consequences of the purchase, ownership
and disposition of Certificates. The discussion, and the opinions referred to
below, are based on laws, regulations, rulings and decisions now in effect (or,
in the case of certain regulations, proposed), all of which are subject to
change or possibly differing interpretations. Investors should consult their own
tax advisors in determining the federal, state, local and other tax consequences
to them of the purchase, ownership and disposition of Certificates. For purposes
of this tax discussion (except with respect to information reporting, or where
the context indicates otherwise), the terms "Certificateholder" and "holder"
mean the beneficial owner of a Certificate. All Certificateholders should also
see "Federal Income Tax Consequences--Non-REMIC Certificates Issued by a Grantor
Trust" in the Prospectus.
TAX STATUS OF THE TRUST FUND
Upon the issuance of the Certificates, Federal Tax Counsel, will deliver
its opinion to the effect that, under then current law, assuming compliance with
the Agreement, the Trust Fund will be classified for federal income tax purposes
as a grantor trust and not as an association taxable as a corporation or a
taxable mortgage pool. Accordingly, each Certificateholder will be subject to
federal income taxation as if it owned directly its interest in each asset owned
by the Trust Fund and paid directly its share of expenses paid by the Trust
Fund.
For purposes of federal income tax, the Spread Account Depositor will be
deemed to have retained a fixed portion of the interest due on each SBA Loan
(the "Spread"). The Spread will be treated as "stripped coupons" within the
meaning of Section 1286 of the Code. The Servicer may also be deemed to have
retained a "stripped coupon" if and to the extent that the Servicing Fee is
determined to be unreasonable. In addition, because the Class B Remittance Rate
exceeds the Class A Remittance Rate, a portion of the interest accrued on each
SBA Loan will be treated as a "stripped coupon" purchased by the Class B
Certificateholders. Accordingly, each Class A Certificateholder will be treated
as owning its pro rata percentage interest in the principal of, and interest
payable on, the Unguaranteed Interest of each SBA Loan (minus the portion of the
interest payable on such SBA Loan that is treated as Spread, as a stripped
coupon retained by the Servicer or as a stripped coupon purchased by the Class B
Certificateholders), and such interest in the Unguaranteed Interest of each SBA
Loan will be treated as a "stripped bond" within the meaning of Section 1286 of
the Code. Similarly, each Class B Certificateholder will be treated as owning
its pro rata percentage interest in the principal of the Unguaranteed Interest
of each SBA Loan, plus a disproportionate share of the interest payable on each
SBA Loan.
CLASS A CERTIFICATEHOLDERS
Because Class A Certificates represent stripped bonds, they will be subject
to the original issue discount ("OID") rules of the Code. Accordingly, the tax
treatment of a Class A Certificateholder will depend upon whether the amount of
OID on a Class A Certificate is less than a statutorily defined de minimis
amount.
In general, under regulations issued under Section 1286 of the Internal
Revenue Code of 1986, as amended (the "Code"), the amount of OID on an SBA Loan
treated as a "stripped bond" will be de minimis if it is less than 0.25 percent
of the stated redemption price at maturity, as defined in Section 1273(a)(2) of
the Code, multiplied by the number of years remaining after the purchase date
until the maturity of the SBA Loan. The maturity date is based on the weighted
average maturity date (and a reasonable prepayment assumption may have to be
taken into account in determining weighted average maturity). Under the
regulations, the portion of the interest on each SBA Loan payable to the Class A
Certificateholders will be treated as "qualified stated interest". As a result,
the amount of OID on an SBA Loan will equal the amount by which the price at
which a Certificateholder is deemed to have acquired an interest in an SBA Loan
(the "Purchase Price") is less than the portion of the remaining principal
balance of the SBA Loan allocable to the interest acquired. Although Federal Tax
Counsel cannot opine on the matter, the Trust Fund intends to take the positions
(i) that the amount of OID on the SBA Loans will be determined by aggregating
all payments on the SBA Loans allocable to the Class A Certificateholders (not
including the Spread), and treating the portion of all payments on the SBA Loans
allocable to Class A Certificateholders as a single obligation on an aggregate
basis, rather than being determined separately with respect to each SBA Loan,
and (ii) that no separate allocation of consideration must be made to accrued
interest or to amounts held in the Certificate Account.
Based on these positions, the Trust Fund anticipates that the Certificates
will not be issued initially with OID (or that any OID present will be de
minimis). The Internal Revenue Service ("IRS") could require, instead, that the
computation be performed on an SBA Loan by SBA Loan basis. In the preamble to
the regulations under Section 1286 of the Code, the IRS requests comment on
appropriate aggregation rules. Any such recalculation could adversely affect the
timing and character of a Class A Certificateholder's income. The IRS might also
require that a portion of the purchase price for a Certificate be allocated to
accrued interest on each SBA Loan and to amounts held in the Certificate Account
pending distribution to Certificateholders at the time of purchase as though
such accrued interest and collections on the SBA Loans were separate assets
purchased by the Certificateholder. Any such allocation would reduce the
Purchase Price and thus increase the discount (or decrease the premium) on the
SBA Loans.
If the amount of OID is de minimis under the rule set forth above, the
Class A Certificates would not be treated as having OID. Each Class A
Certificateholder would be required to report on its federal income tax return
its share of the gross income of the Trust Fund, including interest and certain
other charges accrued on the SBA Loans and any gain upon collection or
disposition of the SBA Loans (but not including any portion of the Spread). Such
gross income attributable to interest on the SBA Loans would exceed the Class A
Remittance Rate by an amount equal to the Class A Certificateholder's share of
the expenses of the Trust Fund for the period during which it owns a Class A
Certificate. The Class A Certificateholder would be entitled to deduct its share
of expenses of the Trust Fund to the extent described below. Any amounts
received by a Class A Certificateholder from the Spread Account or from the
subordination of the Class B Certificates will be treated for federal income tax
purposes as having the same character as the payments they replace. A Class A
Certificateholder would report its share of the income of the Trust Fund under
its usual method of accounting. Accordingly, interest would be includable in a
Certificateholder's gross income when it accrues on the SBA Loans, or, in the
case of Certificateholders who are cash basis taxpayers, when received by the
Servicer on behalf of Certificateholders. The actual amount of discount on an
SBA Loan would be includable in income as principal payments are received on the
SBA Loans.
If, contrary to the treatment anticipated by the Trust Fund, the OID on an
SBA Loan is not de minimis, a Class A Certificateholder will be required to
include in income, in addition to the amounts described above, any OID as it
accrues, regardless of when cash payments are received, using a method
reflecting a constant yield on the SBA Loans. It is possible that the IRS could
require use of a prepayment assumption in computing the yield of an SBA Loan. If
an SBA Loan is deemed to be acquired by a Certificateholder at a significant
discount, such treatment could accelerate the accrual of income by a
Certificateholder.
Although the Trustee intends to account for OID, if any, reportable by
holders of Class A Certificates by reference to the price paid for a Class A
Certificate by an initial purchaser, the amount of OID will differ for
subsequent purchasers. Such subsequent purchasers should consult their tax
advisers regarding the proper calculation of OID on the interest in SBA Loans
represented by a Class A Certificate.
As to SBA Loans that are real estate mortgages, a Certificateholder may be
able (or may be required) to account for any discount on such SBA Loans as
market discount rather than OID if either (i) the amount of OID with respect to
the Certificate was treated as zero under the OID de minimis rule when the
Certificate was stripped or (ii) no more than 1% (i.e., 100 basis points),
including any amount of servicing in excess of reasonable servicing, is stripped
off from the SBA Loans. As noted above, the Trust Fund intends to account for
the SBA Loans on an aggregate basis and does not intend to report separately for
this purpose with respect to the SBA Loans that are real estate mortgages.
In the event that an SBA Loan is treated as purchased at a premium (i.e.,
its Purchase Price exceeds the portion of the remaining principal balance of
such SBA Loan allocable to the Certificateholder), such premium will be
amortizable by the Certificateholder as an offset to interest income (with a
corresponding reduction in the Certificateholder's basis) under a constant yield
method over the term of the SBA Loan if an election under Section 171 of the
Code is made with respect to the interests in the SBA Loans represented by the
Certificates or was previously in effect. Any such election will also apply to
all debt instruments held by the Certificateholder during the year in which the
election is made and all debt instruments acquired thereafter.
A Certificateholder will be entitled to deduct, consistent with its method
of accounting, its pro rata share of reasonable servicing fees and other fees
paid or incurred by the Trust Fund as provided in Section 162 or 212 of the
Code. If a Certificateholder is an individual, estate or trust, the deduction
for such holder's share of such fees will be allowed only to the extent that all
of such holder's miscellaneous itemized deductions, including such holder's
share of such fees, exceed two percent of such holder's adjusted gross income.
CLASS B CERTIFICATEHOLDERS
In General. Except as described below, it is believed that the Class B
Certificateholders will be subject to tax in the same manner as Class A
Certificateholders. However, no federal income tax authorities address the
precise method of taxation of an instrument such as the Class B Certificates and
Federal Tax Counsel cannot opine on this issue. In the absence of applicable
authorities, the Trustee intends to report income to Class B Certificateholders
in the manner described below.
Each Class B Certificateholder will be treated as owning (i) the Class B
Percentage of the principal portion of the Unguaranteed Interest on each SBA
Loan plus (ii) a disproportionate portion of the interest on each SBA Loan (not
including the Spread). Income will be reported to a Class B Certificateholder
based on the assumption that all amounts payable to the Class B
Certificateholders are taxable under the coupon stripping provisions of the Code
and treated as a single obligation. In applying those provisions, the Trustee
will take the position that a Class B Certificateholder's entire share of the
interest on an SBA Loan will qualify as "qualified stated interest." Thus,
except to the extent modified by the effects of subordination of the Class B
Certificates, as described below, income will be reported to Class B
Certificateholders in the manner described above for holders of the Class A
Certificates.
Effect of Subordination. If the Class B Certificateholders receive
distributions of less than their share of the Trust Fund's receipts of principal
or interest (the "Shortfall Amount") because of the subordination of the Class B
Certificates, it is believed that holders of Class B Certificates would probably
be treated for federal income tax purposes as if they had (l) received as
distributions their full share of such receipts, (2) paid over to the Class A
Certificateholders an amount equal to such Shortfall Amount, and (3) retained
the right to reimbursement of such amounts to the extent of future collections
otherwise available for deposit in the Spread Account. However, Federal Tax
Counsel cannot opine to such treatment.
Under this treatment, (1) Class B Certificateholders would be required to
accrue as current income any interest, OID income, or (to the extent paid on the
SBA Loans) accrued market discount of the Trust Fund that was a component of the
Shortfall Amount, even though such amount was in fact paid to the Class A
Certificateholders, (2) a loss would only be allowed to the Class B
Certificateholders when their right to receive reimbursement of such Shortfall
Amount became worthless (i.e., when it became clear that that amount would not
be available from any source to reimburse such loss), and (3) reimbursement of
such Shortfall Amount prior to such a claim of worthlessness would not be
taxable income to Class B Certificateholders because such amount was previously
included in income. Those results should not significantly affect the inclusion
of income for Class B Certificateholders on the accrual method of accounting,
but could accelerate inclusion of income to Class B Certificateholders on the
cash method of accounting by, in effect, placing them on the accrual method.
Moreover, the character and timing of loss deductions is unclear and Federal Tax
Counsel cannot opine as to such character or timing.
STATUS OF THE CERTIFICATES AS REAL PROPERTY LOANS
The Certificates generally will be "real estate assets" for purposes of
Section 856(c)(5)(A) of the Code, and interest income on the Certificates
generally will be "interest on obligations secured by mortgages on real
property" within the meaning of Section 856(c)(3)(B) of the Code, to the extent
that the SBA Loans are mortgages secured by real property. The Certificates
generally will be treated as "loans . . . secured by an interest in real
property" within the meaning of Section 7701(a)(19)(C)(v) of the Code, to the
extent that the SBA Loans are secured by residential real property.
SALES OF CERTIFICATES
A holder that sells a Certificate will recognize gain or loss equal to the
difference between the amount realized on the sale and its adjusted basis in the
Certificate. In general, such adjusted basis will equal the holder's cost for
the Certificate, increased by the amount of any income previously reported with
respect to the Certificate, and decreased by the amount of any losses previously
reported with respect to the Certificate and the amount of any distributions
received thereon. Any such gain or loss generally will be capital gain or loss
if the assets underlying the Certificate were held as capital assets, except
that, in the case of a Certificate that was acquired with more than a de minimis
amount of market discount, such gain will be treated as ordinary interest income
to the extent of the portion of such discount that accrued during the period in
which the seller held the Certificate and that was not previously included in
income.
FOREIGN INVESTORS
A Certificateholder who is not a "United States person" (as defined below)
and is not subject to federal income tax as a result of any direct or indirect
connection to the United States other than its ownership of a Certificate
generally will not be subject to United States income or withholding tax in
respect of payments of interest or original issue discount on a Certificate,
provided that the holder complies to the extent necessary with certain
identification requirements (including delivery of a statement, signed by the
Certificateholder under penalties of perjury, certifying that such holder is not
a United States person and providing the name and address of such holder).
However, distributions of interest to a holder who is not a United States person
will be subject to withholding tax at a rate of 30 percent, unless such
withholding tax rate is reduced by an applicable treaty, to the extent that such
interest distributions are attributable to SBA Loans originated on or prior to
July 18, 1984. For these purposes, the term "United States person" means a
citizen or a resident of the United States, a corporation, partnership, or other
entity created or organized in, or under the laws of, the United States or any
political subdivision thereof, an estate the income of which is subject to
United States federal income taxation regardless of its source, or a trust not
described in Section 7701(a)(31) of the Code.
BACKUP WITHHOLDING
Payments of interest and principal, as well as payments of proceeds from
the sale of Certificates, to Certificateholders who are not "exempt recipients"
may be subject to the "backup withholding" tax under Section 3406 of the Code at
a rate of 31 percent, if such holders fail to furnish certain information,
including their taxpayer identification numbers, to the Trustee, its agent, or
the broker effecting a sale of the Certificate, or otherwise fail to establish
an exemption from such tax. Any amounts deducted and withheld from a
distribution to a Certificateholder would be allowed as a credit against such
Certificateholder's federal income tax. Furthermore, certain penalties may be
imposed by the IRS on a Certificateholder who is required to supply information
but who does not do so in the proper manner.
ERISA CONSIDERATIONS
Neither an Underwriter Exemption (as defined in the Prospectus) nor
Prohibited Transaction Class Exemption 83-1 is applicable to the purchase,
holding or transfer of the Certificates. Therefore, no Certificates may be
purchased for, or on behalf of, any employee benefit plan or other retirement
arrangement which is subject to Title I of the Employee Retirement Income
Security Act of 1974, as amended, and/or Section 4975 of the Internal Revenue
Code of 1986, as amended, or any entity whose underlying assets include plan
assets by reason of such plan or account investing in such entity (including
insurance company separate or general accounts and collective investment funds).
Each Certificateholder will be deemed to have represented and warranted that it
is not subject to the foregoing limitations. See "ERISA Considerations" in the
Prospectus.
LEGAL INVESTMENT
There may be restrictions on the ability of certain investors, including
depository institutions, either to purchase Certificates or to purchase
Certificates representing more than a specified percentage of the investor's
assets. Investors should consult their own legal advisors in determining whether
and to what extent the Certificates constitute legal investments for such
investors.
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
for the sale of the Class A and Class B Certificates, dated __________, 199__
(the "Underwriting Agreement"), the Sellers have agreed to sell and the
Underwriter has agreed to purchase all the Class A and Class B Certificates. The
Class A and Class B Certificates will be offered by the Underwriter to the
public in negotiated transactions. After the Class A and Class B Certificates
are released for sale to the public, the offering price and other selling terms
may be varied by the Underwriter. The Underwriter and any dealers that
participate with the Underwriter in the distribution of the Class A and Class B
Certificates may be deemed to be underwriters and any commissions received by
them and any profit on the resale of the Class A and Class B Certificates by
them may be deemed to be underwriting discounts and commissions under the 1933
Act.
In connection with the offering, the Underwriter and the selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Class A
Certificates. Such transactions may include stabilization transactions in
accordance with Rule 104 of Regulation M, pursuant to which such person may bid
for or purchase the Class A Certificates for the purpose of stabilizing their
market price. The Underwriter may also create a short position for the account
of the Underwriter by selling more the Class A Certificates in connection with
the offering than it is committed to purchase, and in such case may purchase the
Class A Certificates in the open market following completion of the offering to
cover all or a portion of such short position. Any of the transactions described
in this paragraph may result in the maintenance of the price of the Class A
Certificates at a level above that which might otherwise prevail in the open
market. None of the transactions described in this paragraph is required, and,
if they are undertaken, they may discontinue at any time.
The Representative and the Sellers have agreed to indemnify the Underwriter
against certain liabilities including liabilities under the 1933 Act.
In addition to purchasing the Certificates pursuant to the Underwriting
Agreement, the Underwriter and its affiliates have performed investment banking
services for the Representative and its affiliates.
RATINGS
It is a condition to their issuance that the Class A Certificates be rated
"Aaa" and "AAA" by [Moody's] and [Duff & Phelps], respectively, and that the
Class B Certificates be rated at least "___" and "___" by [Moody's] and [Duff &
Phelps], respectively. A rating of "Aaa" and "AAA" is the highest rating
assigned by [Moody's] and [Duff & Phelps], respectively. [According to
[Moody's], securities which are rated "Aaa" are judged to be of the best quality
and, according to [Duff & Phelps], a rating of "AAA" indicates that the capacity
to pay interest and repay principal is extremely strong. According to [Moody's],
such securities carry the smallest degree of investment risk and are generally
referred to as "gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
According to [Moody's], securities which are rated "___" possess many favorable
investment attributes and are to be considered as upper-medium-grade
obligations. Factors giving security to principal and interest are considered
adequate, but elements may be present which suggest a susceptibility to
impairment sometime in the future. According to [Duff & Phelps], a rating of
"___" indicates that the capacity to pay interest and repay principal is
average, although a security with these ratings is more susceptible to adverse
effects of changes in circumstances and economic conditions than securities in
higher categories. A security rating is not a recommendation to buy, sell or
hold securities and may be subject to revision or withdrawal at any time. No
person is obligated to maintain the rating on any Certificate.]
LEGAL MATTERS
Certain legal matters relating to the validity of the issuance of the
Certificates will be passed upon for the Sellers by Eric Elwin, Esq., Corporate
Counsel to the Sellers. Certain legal matters relating to the validity of the
issuance of the Certificates will be passed upon for the Underwriter by Stroock
& Stroock & Lavan LLP, New York, New York. Stroock & Stroock & Lavan LLP also
will render opinions relating to the transfer of the Unguaranteed Interests from
the Sellers to the Trust Fund and as to the material federal income tax
consequences associated with the purchase, ownership and disposition of the
Certificates. See "Risk Factors -- The Status of the SBA Loans in the Event of
Bankruptcy of the Sellers" and "Federal Income Tax Consequences" herein and
"Federal Income Tax Consequences" in the Prospectus.
FINANCIAL INFORMATION
The Sellers have determined that their financial statements are not
material to the offering made hereby. Except for certain representations and
warranties relating to the SBA Loans, the obligations of the Sellers with
respect to the SBA Loans are primarily limited to contractual servicing
obligations.
[Financial statements of The Money Store Inc. have been incorporated by
reference into this Prospectus Supplement and the Prospectus. See "Incorporation
of Certain Documents by Reference" in the Prospectus.]
The Trust Fund has been formed to own the SBA Loans and to issue the
Certificates. The Trust Fund had no assets or obligations prior to the issuance
of the Certificates and will not engage in any activities other than those
described herein. Accordingly, no financial statements with respect to the Trust
Fund are included in this Prospectus Supplement.
<PAGE>
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered Class A and
Class B Certificates (the "Global Securities") will be available only in
book-entry form. Investors in the Global Securities may hold such Global
Securities through any of The Depository Trust Company, CEDEL or Euroclear. The
Global Securities will be tradable as home market instruments in both the
European and U.S. domestic markets. Initial settlement and all secondary trades
will settle in same-day funds.
Secondary market trading between investors holding Global Securities
through CEDEL and Euroclear will be conducted in the ordinary way in accordance
with their normal rules and operating procedures and in accordance with
conventional Eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors holding Global Securities
through DTC will be conducted according to the rules and procedures applicable
to U.S. corporate debt obligations and prior issuances of securities generally
having the same characteristics as the Certificates and representing a pool of
SBA loans ("SBA Loan-Backed Certificates").
Secondary, cross-market trading between CEDEL or Euroclear and DTC
Participants holding Certificates will be effected on a delivery-against-payment
basis through the respective Depositaries of CEDEL and Euroclear (in such
capacity) and as DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be subject
to U.S. withholding taxes unless such holders meet certain requirements and
deliver appropriate U.S. tax documents to the securities clearing organizations
or their participants.
INITIAL SETTLEMENT
All Global Securities will be held in book-entry form by DTC in the name of
Cede & Co. as nominee of DTC. Investors' interests in the Global Securities will
be represented through financial institutions acting on their behalf as direct
and indirect Participants in DTC. As a result, CEDEL and Euroclear will hold
positions on behalf of their participants through their respective Depositaries,
which in turn will hold such positions in accounts as DTC Participants.
Investors electing to hold their Global Securities through DTC will follow
the settlement practices applicable to prior SBA Loan-Backed Certificates
issues. Investor securities custody accounts will be credited with their
holdings against payment in same-day funds on the settlement date.
Investors electing to hold their Global Securities through CEDEL or
Euroclear accounts will follow the settlement procedures applicable to
conventional Eurobonds, except that there will be no temporary global security
and no "lock-up" or restricted period. Global Securities will be credited to the
securities custody accounts on the settlement date against payment in same-day
funds.
SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
Trading between DTC Participants. Secondary market trading between DTC
Participants will be settled using the procedures applicable to prior SBA
Loan-Backed Certificates issues in same-day funds.
Trading between CEDEL and/or Euroclear Participants. Secondary market
trading between CEDEL Participants or Euroclear Participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
Trading between DTC seller and CEDEL or Euroclear purchaser. When Global
Securities are to be transferred from the account of a DTC Participant to the
account of a CEDEL Participant or a Euroclear Participant, the purchaser will
send instructions to CEDEL or Euroclear through a CEDEL Participant or Euroclear
Participant at least one business day prior to settlement. CEDEL or Euroclear
will instruct the respective Depositary, as the case may be, to receive the
Global Securities against payment. Payment will include interest accrued on the
Global Securities from and including the last coupon payment date to and
excluding the settlement date, on the basis of the actual number of days in such
accrual period and a year assumed to consist of 360 days. For transactions
settling on the 31st of the month, payment will include interest accrued to and
excluding the first day of the following month. Payment will then be made by the
respective Depositary of the DTC Participant's account against delivery of the
Global Securities. After settlement has been completed, the Global Securities
will be credited to the respective clearing system and by the clearing system,
in accordance with its usual procedures, to the CEDEL Participant's or Euroclear
Participant's account. The securities credit will appear the next day (European
time) and the cash debt will be back-valued to, and the interest on the Global
Securities will accrue from, the value date (which would be the preceding day
when settlement occurred in New York.) If settlement is not completed on the
intended value date (i.e., the trade fails), the CEDEL, or Euroclear cash debt
will be valued instead as of the actual settlement date.
CEDEL Participants and Euroclear Participants will need to make available
to the respective clearing systems the funds necessary to process same-day funds
settlement. The most direct means of doing so is to preposition funds for
settlement, either from cash on hand or existing lines of credit, as they would
for any settlement occurring within CEDEL or Euroclear. Under this approach,
they may take on credit exposure to CEDEL or Euroclear until the Global
Securities are credited to their accounts one day later.
As an alternative, if CEDEL or Euroclear has extended a line of credit to
them, CEDEL Participants or Euroclear Participants can elect not to preposition
funds and allow that credit line to be drawn upon the finance settlement. Under
this procedure, CEDEL Participants or Euroclear Participants purchasing Global
Securities would incur overdraft charges for one day, assuming they cleared the
overdraft when the Global Securities were credited to their accounts. However,
interest on the Global Securities would accrue from the value date. Therefore,
in many cases the investment income on the Global Securities earned during that
one-day period may substantially reduce or offset the amount of such overdraft
charges, although this result will depend on each CEDEL Participant's or
Euroclear Participant's particular cost of funds.
Since the settlement is taking place during New York business hours, DTC
Participants can employ their usual procedures for sending Global Securities to
the respective European Depositary for the benefit of CEDEL Participants or
Euroclear Participants. The sale proceeds will be available to the DTC seller on
the settlement date. Thus, to the DTC Participants a cross-market transaction
will settle no differently than a trade between two DTC Participants.
Trading between CEDEL or Euroclear Seller and DTC Purchaser. Due to time
zone differences in their favor, CEDEL Participants and Euroclear Participants
may employ their customary procedures for transactions in which Global
Securities are to be transferred by the respective clearing system, through the
respective Depositary, to a DTC Participant. The seller will send instructions
to CEDEL or Euroclear through a CEDEL Participant or Euroclear Participant at
least one business day prior to settlement. In these cases CEDEL or Euroclear
will instruct the respective Depositary, as appropriate, to deliver the Global
Securities to the DTC Participant's account against payment. Payment will
include interest accrued on the Global Securities from and including the last
coupon payment to and excluding the settlement date on the basis of the actual
number of days in such accrual period and a year assumed to consist of 360 days.
For transactions settling on the 31st of the month, payment will include
interest accrued to and excluding the first day of the following month. The
payment will then be reflected in the account of the CEDEL Participant or
Euroclear Participant the following day, and receipt of the cash proceeds in the
CEDEL Participant's or Euroclear Participant's account would be back-valued to
the value date (which would be the preceding day, when settlement occurred in
New York). Should the CEDEL Participant or Euroclear Participant have a line of
credit with its respective clearing system and elect to be in debt in
anticipation of receipt of the sale proceeds in its account, the back-valuation
will extinguish any overdraft incurred over that one-day period. If settlement
is not completed on the intended value date (i.e., the trade fails), receipt of
the cash proceeds in the CEDEL Participant's or Euroclear Participant's account
would instead be valued as of the actual settlement date.
Finally, day traders that use CEDEL or Euroclear and that purchase Global
Securities from DTC Participants for delivery to CEDEL Participants or Euroclear
Participants should note that these trades would automatically fail on the sale
side unless affirmative action were taken. At least three techniques should be
readily available to eliminate this potential problem:
(a) borrowing through CEDEL or Euroclear for one day (until the purchase
side of the day trade is reflected in their CEDEL or Euroclear accounts) in
accordance with the clearing system's customary procedures;
(b) borrowing the Global Securities in the U.S. from a DTC Participant no
later than one day prior to settlement, which would give the Global Securities
sufficient time to be reflected in their CEDEL or Euroclear account in order to
settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the trade so
that the value date for the purchase from the DTC' Participant is at least one
day prior to the value date for the sale to the CEDEL Participant or Euroclear
Participant.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Global Securities holding securities through CEDEL,
or Euroclear (or through DTC if the holder has an address outside the U.S.) will
be subject to the 30% U.S. withholding tax that generally applies to payments of
interest (including original issue discount) on registered debt issued by U.S.
Persons, unless (i) each clearing system, bank or other financial institution
that holds customers' securities in the ordinary course of its trade or business
in the chain of intermediaries between such beneficial owner and the U.S. entity
required to withhold tax complies with applicable certification requirements and
(ii) such beneficial owner takes one of the following steps to obtain an
exemption or reduced tax rate.
Exception for non-U.S. Persons (Form W-8). Beneficial owners of Global
Securities that are non- U.S. Persons can obtain a complete exemption from the
withholding tax by filing a signed Form W-8 (Certificate of Foreign Status). If
the information shown on Form W-8 changes, a new Form W-8 must be filed within
30 days of such change.
Exemption for non-U.S. Persons with effectively connected income (Form
4224). A non-U.S. Person including a non-U.S. corporation or bank with a U.S.
branch, for which the interest income is effectively connected with its conduct
of a trade or business in the United States, can obtain an exemption from the
withholding tax by filing Form 4224 (Exemption from Withholding of Tax on Income
Effectively Connected with the Conduct of a Trade or Business in the United
States).
Exemption or reduced rate for non-U.S. Persons resident in treaty
countries. (Form 1001). Non- U.S. Persons that are Certificate Owners residing
in a country that has a tax treaty with the United States can obtain an
exemption or reduced tax rate (depending on the treaty terms) by filing Form
1001 (Ownership, Exemption or Reduced Rate Certificate). If the treaty provides
only for a reduced rate, withholding tax will be imposed at that rate unless the
filer alternatively files Form W-8. Form 1001 may be filed by the Certificate
Owners or his agent.
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a complete
exemption from the withholding tax by filing Form W-9 (Payer's Request for
Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The Certificate Owner of a
Global Security or, in the case of a Form 1001 or a Form 4224 filer, his agent,
files by submitting the appropriate form to the person through whom it holds
(the clearing agency, in the case of persons holding directly on the books of
the clearing agency). Form W-8 and Form 1001 are effective for three calendar
years and Form 4224 is effective for one calendar year.
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation or partnership organized in or under the laws of the
United States or any political subdivision thereof or (iii) an estate or trust
the income of which is includible in gross income for United States tax
purposes, regardless of its source. This summary does not deal with all aspects
of U.S. Federal income tax withholding that may be relevant to foreign holders
of the Global Securities. Investors are advised to consult their own tax
advisors for specific tax advise concerning their holding and disposing of the
Global Securities.
<PAGE>
INDEX OF PRINCIPAL TERMS
Page
Account.................................................................. *
Act...................................................................... S-47
Additional Fee........................................................... S-4
Additional Fee SBA Loans................................................. S-4
Adjusted SBA Loan Remittance Rate........................................ S-18
Adjustment Date.......................................................... S-9
Agent of the SBA......................................................... S-4
Agent of the SBA's Fee................................................... S-3
Aggregate Class A Certificate Principal Balance.......................... *
Aggregate Class B Certificate Principal Balance.......................... *
Agreement................................................................ S-2
Annual Expense Escrow Amount............................................. *
Assignee................................................................. S-16
Assignment of Mortgage................................................... *
Available Funds.......................................................... S-7
BIF...................................................................... *
Book-entry Certificates.................................................. S-61
Business Day............................................................. *
Capitalized Interest Account............................................. S-7
CDC...................................................................... S-48
Cede..................................................................... S-21
CEDEL.................................................................... S-21
CEDEL Participants....................................................... S-62
Certificate Account...................................................... S-56
Certificateholder or Holder.............................................. *
Certificate Owners....................................................... S-62
Certificate Register..................................................... *
Certificate Registrar.................................................... *
Certificates............................................................. S-2
Certified Lender......................................................... S-47
Class A Carry-Forward Amount............................................. S-11
Class A Certificates..................................................... S-2
Class A Certificate Balance.............................................. S-9
Class A Interest Distribution Amount..................................... S-8
Class A Percentage....................................................... S-11
Class A Principal Distribution Amount.................................... S-10
Class A Remittance Amount................................................ S-11
Class A Remittance Rate.................................................. S-8
Class B Carry-Forward Amount............................................. S-11
Class B Certificates..................................................... S-2
Class B Certificate Balance.............................................. S-9
Class B Interest Distribution Amount..................................... S-8
Class B Percentage....................................................... S-11
Class B Principal Distribution Amount.................................... S-10
Class B Remittance Amount................................................ S-11
Class B Remittance Rate.................................................. S-8
Closing Date............................................................. S-12
CLP...................................................................... S-53
Code..................................................................... S-68
Collateral............................................................... *
Commercial Property .................................................... *
Compensating Interest.................................................... S-19
Cooperative.............................................................. S-63
CPR...................................................................... S-50
Curtailment.............................................................. *
Cut-Off Date............................................................. S-5
Definitive Certificates.................................................. S-21
Designated Depository Institution........................................ *
Determination Date....................................................... S-18
DTC...................................................................... S-21
Due Date ................................................................ *
Due Period............................................................... S-10
Duff & Phelps............................................................ S-21
ERISA.................................................................... S-21
Euroclear................................................................ S-2
Euroclear Operator....................................................... S-63
Euroclear Participants................................................... S-62
European Depositaries.................................................... S-62
Event of Default ........................................................ *
Excess Payments.......................................................... *
Excess Proceeds.......................................................... *
Excess Spread............................................................ S-5
Expense Account.......................................................... *
Extra Interest........................................................... S-59
Extra Interest Percentage................................................ S-59
FDIC..................................................................... *
Federal Tax Counsel...................................................... S-20
FHLMC .................................................................. *
FNMA .................................................................... *
Foreclosed Property .................................................... *
Foreclosed Property Disposition ........................................ *
Funding Period........................................................... S-6
Global Securities........................................................ S-74
GPP...................................................................... S-53
Grantor Trust............................................................ S-20
Guaranteed Interest...................................................... S-4
Guaranty................................................................. S-14
Holders.................................................................. S-21
Initial Class A Certificate Principal Amount............................. S-2
Initial Class B Certificate Principal Amount............................. S-2
Initial Deposit.......................................................... S-13
Insurance Proceeds....................................................... *
Interest Accrual Period.................................................. S-6
IRS...................................................................... S-68
Liquidated SBA Loan .................................................... *
Liquidation Proceeds..................................................... *
Loan Guaranty Agreement ................................................ *
Majority Certificateholders.............................................. *
Monthly Advance.......................................................... S-18
Monthly Payment ........................................................ *
[Moody's] ............................................................... S-21
Mortgage ................................................................ *
Mortgaged Property....................................................... *
MSNY..................................................................... S-1
Multi-Party Agreement .................................................. S-17
Net Liquidation Proceeds................................................. *
Note Rate................................................................ S-15
Notes.................................................................... S-6
OID...................................................................... S-20
Obligor ................................................................ S-3
Opinion of Counsel....................................................... *
Original Class A Certificate Principal Balance........................... *
Original Class B Certificate Principal Balance........................... *
Original Pool Principal Balance.......................................... S-5
Parent................................................................... S-52
Paying Agent............................................................. *
Percentage Interest...................................................... *
Permitted Instruments.................................................... *
Person .................................................................. *
Physical Certificates.................................................... S-64
PLP...................................................................... S-53
Pool Principal Balance................................................... *
Preferred Lender......................................................... S-47
Pre-Funded Amount........................................................ S-6
Pre-Funding Account...................................................... S-6
Premium Protection Fee................................................... S-4
Prime Rate............................................................... S-9
Principal and Interest Account........................................... S-54
Principal Balance ...................................................... *
Principal Prepayment..................................................... *
Prior Lien............................................................... *
Prospectus............................................................... S-2
Purchase Price........................................................... S-68
Record Date ............................................................. S-12
Registered Holder ...................................................... *
Reimbursable Amounts..................................................... *
Released Mortgaged Property Proceeds..................................... S-18
REMIC.................................................................... S-20
Representative........................................................... S-1
Remittance Date.......................................................... S-12
Residential Property..................................................... *
Responsible Officer ..................................................... *
SAIF .................................................................... *
SBA ..................................................................... S-1
SBA File ................................................................ *
SBA Form 1086 ........................................................... *
SBA Loan-Backed Certificates............................................. S-74
SBA Loan Interest Rate .................................................. *
SBA Loan Pool............................................................ S-3
SBA Loans................................................................ S-3
SBA Loan Schedule ....................................................... *
SBA Notes................................................................ S-25
SBA Rules and Regulations ............................................... *
SBA 504 Loan Program..................................................... S-47
SBA 504 Loans ........................................................... S-3
SBA ss. 7(a) Loans ...................................................... S-2
Section 7(a) Companion Loans ............................................ S-2
Section 7(a) Companion Program ......................................... S-48
Sellers ................................................................. S-1
Servicer................................................................. S-1
Servicer's Certificate .................................................. *
Servicing Advances .................................................... S-19
Servicing Fee............................................................ S-19
Servicing Officer ....................................................... *
Shortfall Amount......................................................... S-22
Simple Interest.......................................................... S-26
Special Remittance Date.................................................. S-7
Specified Spread Account Requirement..................................... S-13
Spread................................................................... S-67
Spread Account .......................................................... S-12
Spread Account Agreement................................................. S-12
Spread Account Custodian................................................. *
Spread Account Depositor................................................. S-12
Spread Balance........................................................... S-13
Subsequent SBA Loans..................................................... S-2
Subservicer.............................................................. *
Subservicing Agreement................................................... *
Successor Servicer....................................................... S-65
Tax Return .............................................................. *
Termination Price........................................................ S-20
Terms and Conditions..................................................... S-63
TMSCMI................................................................... S-1
TMSIC.................................................................... S-1
Trustee.................................................................. S-2
Trust Fund............................................................... S-1
UCC...................................................................... S-17
Underwriter.............................................................. S-2
Underwriting Agreement................................................... S-72
Unguaranteed Interest.................................................... S-1
Unguaranteed Percentage ................................................. S-5
United States Person..................................................... S-71
U.S. Person.............................................................. S-77
Weighted average life ................................................... S-50
* Defined in "Certain Definitions."
<PAGE>
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the definitions contained in the
Agreement and used in this Prospectus Supplement. Reference is made to the
Agreement for the full definitions of all terms.
ACCOUNT: The Certificate Account, the Expense Account and, if applicable,
the Pre-Funding Account and the Capitalized Interest Account, each established
by the Trustee for the benefit of the Certificateholders; the Expense Account
established by the Trustee for the benefit of the Trustee, and the Spread
Account held by the Spread Account Custodian pursuant to the Spread Account
Agreement. The Trustee's obligation to establish and maintain the Certificate
Account pursuant to the Agreement is not delegable.
ADDITIONAL FEE: With respect to each Additional Fee SBA Loan, the fee
payable to the SBA by the related Seller equal to 40 basis points per annum on
the outstanding balance of the Guaranteed Interest of such Additional Fee SBA
Loans.
ADDITIONAL FEE SBA LOAN: An SBA ss. 7(a) Loan sold in the secondary market
on or after September 1, 1993, and, thus, subject to the Additional Fee.
AGGREGATE CLASS A CERTIFICATE PRINCIPAL BALANCE: As of any date of
determination, the Original Class A Aggregate Certificate Principal Balance less
the sum of all amounts previously distributed to the Class A Certificateholders
in respect of principal.
AGGREGATE CLASS B CERTIFICATE PRINCIPAL BALANCE: As of any date of
determination, the Original Aggregate Class B Certificate Principal Balance less
the sum of all amounts previously distributed to the Class B Certificateholders
in respect of principal.
ANNUAL EXPENSE ESCROW AMOUNT: The product of ___% per annum and the Pool
Principal Balance, which is computed and payable on a monthly basis and
represents the estimated annual Trustee's fees and Trust Fund expenses.
ASSIGNMENT OF MORTGAGE: With respect to those SBA Loans secured by a
Mortgaged Property, an assignment of the Mortgage, notice of transfer or
equivalent instrument sufficient under the laws of the jurisdiction wherein the
related Mortgaged Property is located to reflect of record the transfer of the
related SBA Loan to the Trustee.
BIF: The Bank Insurance Fund, or any successor thereto.
BUSINESS DAY: Any day other than (i) a Saturday or Sunday, or (ii) a day on
which banking institutions in the States of California, New York or New Jersey
are authorized or obligated by law or executive order to be closed.
CERTIFICATEHOLDER or HOLDER: Each Person in whose name a Class A or Class B
Certificate is registered in the Certificate Register, except that, solely for
the purposes of giving any consent, waiver, request or demand pursuant to the
Agreement, any Certificate registered in the name of the Sellers, the Servicer,
any Subservicer or any affiliate of any of them, shall be deemed not to be
outstanding and the undivided Percentage Interest evidenced thereby shall not be
taken into account in determining whether the requisite percentage of
Certificates necessary to effect any such consent, waiver, request or demand has
been obtained.
CERTIFICATE REGISTER: The Certificate Register established and maintained
in accordance with the Agreement.
CERTIFICATE REGISTRAR: Initially, ________________, and thereafter, any
successor appointed pursuant to the Agreement.
COLLATERAL: All items of property (including a Mortgaged Property), whether
real or personal, tangible or intangible, or otherwise, pledged by an Obligor or
others to a Seller to secure payment under an SBA Loan.
COMMERCIAL PROPERTY: Real property (other than agricultural property or
Residential Property) that is generally used by the Obligor in the conduct of
its business.
CURTAILMENT: With respect to an SBA Loan, any payment of principal received
during a Due Period as part of a payment that is in excess of five times the
amount of the Monthly Payment due for such Due Period and which is not intended
to satisfy the SBA Loan in full, nor is intended to cure a delinquency.
DESIGNATED DEPOSITORY INSTITUTION: With respect to the Principal and
Interest Account, an entity which is an institution whose deposits are insured
by either the BIF or SAIF administered by the FDIC, the unsecured and
uncollateralized long-term debt obligations of which shall be rated A2 or better
by [Moody's] and A or better by [Duff & Phelps] or P1 by [Moody's] and A1 by
[Duff & Phelps], and which is either (i) a federal savings association duly
organized, validly existing and in good standing under the federal banking laws,
(ii) an institution duly organized, validly existing and in good standing under
the applicable banking laws of any state, (iii) a national banking association
duly organized, validly existing and in good standing under the federal banking
laws, or (iv) a principal subsidiary of a bank holding company, in each case
acting or designated by the Servicer as the depository institution for the
Principal and Interest Account.
DETERMINATION DATE: That day of each month which is the third Business Day
prior to the 15th day of such month.
DUE DATE: The day of the month on which the Monthly Payment is due from the
Obligor on an SBA Loan.
EVENT OF DEFAULT: The Events of Default of the Servicer specified in the
Agreement.
EXCESS PAYMENTS: With respect to a Due Period, any amounts received on an
SBA Loan in excess of the Monthly Payment due on the Due Date relating to such
Due Period which does not constitute either a Curtailment or a Principal
Prepayment or payment with respect to an overdue amount. Excess Payments are
payments of principal for purposes of the Agreement.
EXCESS PROCEEDS: As of any Remittance Date, with respect to any Liquidated
SBA Loan, the excess, if any, of (a) the Unguaranteed Percentage of the total
Net Liquidation Proceeds, over (b) the Principal Balance of such SBA Loan as of
the date such SBA Loan became a Liquidated SBA Loan plus 30 days interest
thereon at the then applicable Adjusted SBA Loan Remittance Rate; provided,
however, that such excess shall be reduced by the amount by which interest
accrued on the advance, if any, made by the Servicer at the related SBA Loan
Interest Rate(s) exceeds interest accrued on such advance at the then applicable
weighted average Class A and Class B Remittance Rates.
EXPENSE ACCOUNT: The expense account established and maintained by the
Trustee in accordance with the Agreement.
FDIC: The Federal Deposit Insurance Corporation and any successor thereto.
FHLMC: The Federal Home Loan Mortgage Corporation and any successor
thereto.
FNMA: The Federal National Mortgage Association and any successor thereto.
FORECLOSED PROPERTY: Property, the title to which is acquired in
foreclosure or by deed in lieu of foreclosure.
FORECLOSED PROPERTY DISPOSITION: The final sale of a Foreclosed Property
acquired in foreclosure or by deed in lieu of foreclosure. The proceeds of any
Foreclosed Property Disposition constitute part of the definition of Liquidation
Proceeds.
INSURANCE PROCEEDS: Proceeds paid by any insurer pursuant to any insurance
policy covering an SBA Loan, Collateral or Foreclosed Property, including but
not limited to title, hazard, life, health and/or accident insurance policies.
LIQUIDATED SBA LOAN: Any defaulted SBA Loan or Foreclosed Property as to
which the Servicer has determined that all amounts which it reasonably and in
good faith expects to recover have been recovered from or on account of such SBA
Loan.
LIQUIDATION PROCEEDS: Cash, including Insurance Proceeds, proceeds of any
Foreclosed Property Disposition, revenues received with respect to the
conservation and disposition of a Foreclosed Property, and any other amounts
received in connection with the liquidation of defaulted SBA Loans, whether
through trustee's sale, foreclosure sale or otherwise.
LOAN GUARANTY AGREEMENT: The Loan Guaranty Agreement (Deferred
Participation) (SBA Form 750) dated August 13, 1980 between the SBA and The
Money Store Investment Corporation, as such agreement may be amended from time
to time.
MAJORITY CERTIFICATEHOLDERS: The Holder or Holders of Class A and Class B
Certificates evidencing an Aggregate Class A Certificate Principal Balance and
Aggregate Class B Certificate Principal Balance, as the case may be, in excess
of 50% of the Aggregate Class A Certificate Principal Balance and Aggregate
Class B Certificate Principal Balance, as the case may be.
MONTHLY PAYMENT: The monthly payment of principal and/or interest required
to be made by an Obligor on the related SBA Loan, as adjusted pursuant to the
terms of the related SBA Note.
MORTGAGE: The mortgage, deed of trust or other instrument creating a lien
on a Mortgaged Property.
MORTGAGED PROPERTY: The underlying real property, if any, securing an SBA
Loan, consisting of a Commercial Property or Residential Property and any
improvements thereon.
NET LIQUIDATION PROCEEDS: Liquidation Proceeds net of (i) any
reimbursements to the Servicer made therefrom pursuant to the Agreement and (ii)
amounts required to be released to the related Obligor pursuant to applicable
law.
OPINION OF COUNSEL: A written opinion of counsel, who may, without
limitation, be counsel for the Sellers or Servicer, reasonably acceptable to the
Trustee and experienced in matters relating thereto.
ORIGINAL CLASS A CERTIFICATE PRINCIPAL BALANCE: The initial aggregate
principal amount of Class A Certificates issued on the Closing Date.
ORIGINAL CLASS B CERTIFICATE PRINCIPAL BALANCE: The initial aggregate
principal amount of Class B Certificates on the Closing Date.
PAYING AGENT: Initially, ________________, and thereafter, any other Person
that meets the eligibility standards for the Paying Agent specified in the
Agreement and is authorized by the Trustee to make payments on the Certificates
on behalf of the Trustee.
PERCENTAGE INTEREST: With respect to a Class A or Class B Certificate, the
portion of the Trust Fund evidenced by such Class A or Class B Certificate,
expressed as a percentage, the numerator of which is the denomination
represented by such Class A or Class B Certificate and the denominator of which
is the Original Class A Certificate Principal Balance or Original Class B
Certificate Principal Balance, as the case may be.
PERMITTED INSTRUMENTS: As used herein, Permitted Instruments shall include
the following:
(a) direct general obligations of, or obligations fully and
unconditionally guaranteed as to the timely payment of principal and
interest by, the United States or any agency or instrumentality thereof,
provided such obligations are backed by the full faith and credit of the
United States, FHA debentures, Federal Home Loan Bank consolidated senior
debt obligations, and FNMA senior debt obligations, but excluding any of
such securities whose terms do not provide for payment of a fixed dollar
amount upon maturity or call for redemption;
(b) federal funds, certificates of deposit, time deposits and banker's
acceptances (having original maturities of not more than 365 days) of any
bank or trust company incorporated under the laws of the United States or
any state thereof, provided that the short-term debt obligations of such
bank or trust company at the date of acquisition thereof have been rated
Prime-1 or better by [Moody's] and Duff 1+ or better by [Duff & Phelps];
(c) deposits of any bank or savings and loan association which has
combined capital, surplus and undivided profits of at least $3,000,000
which deposits are held only up to the limits insured by the BIF or SAIF
administered by the FDIC, provided that the unsecured long-term debt
obligations of such bank or savings and loan association have been rated A3
or better by [Moody's] and A or better by [Duff & Phelps];
(d) commercial paper (having original maturities of not more than 365
days) rated Prime-1 or better by [Moody's] and Duff 1+ or better by [Duff &
Phelps];
(e) debt obligations rated Aaa by [Moody's] and AAA by [Duff & Phelps]
(other than any such obligations that do not have a fixed par value and/or
whose terms do not promise a fixed dollar amount at maturity or call date);
(f) investments in money market funds rated Aaa or better by [Moody's]
and Duff 1+ or better by [Duff & Phelps] the assets of which are invested
solely in instruments described in clauses (i)-(v) above;
(g) certain guaranteed investment contracts and repurchase agreements
satisfying the criteria set forth in the Agreement; and
(h) any other investment acceptable to the Rating Agencies, written
confirmation of which shall be furnished to the Trustee prior to any such
investment.
PERSON: Any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, national banking association,
unincorporated organization or government or any agency or political subdivision
thereof.
POOL PRINCIPAL BALANCE: The aggregate Principal Balances as of any date of
determination.
PRINCIPAL AND INTEREST ACCOUNT: The principal and interest account
established by the Servicer pursuant to the Agreement.
PRINCIPAL BALANCE: With respect to any SBA Loan or related Foreclosed
Property, at any date of determination, (i) the Unguaranteed Percentage of the
principal balance of the SBA Loan outstanding as of the CutOff Date (or, with
respect to any Subsequent SBA Loan, as of the date set forth in the Agreement),
after application of principal payments received on or before such date, minus
(ii) the sum of (a) the Unguaranteed Percentage of the principal portion of the
Monthly Payments received during each Due Period ending prior to the most recent
Remittance Date, which were distributed pursuant to the Agreement on any
previous Remittance Date, and (b) the Unguaranteed Percentage of all Principal
Prepayments, Curtailments, Excess Payments, Insurance Proceeds, Released
Mortgaged Property Proceeds, Net Liquidation Proceeds and net income from a
Foreclosed Property to the extent applied by the Servicer as recoveries of
principal in accordance with the provisions of the Agreement, which were
distributed pursuant to the Agreement on any previous Remittance Date. The
Principal Balance of any Liquidated SBA Loan or any SBA Loan that has been paid
off will equal $0.
PRINCIPAL PREPAYMENT: Any payment or other recovery of principal on an SBA
Loan equal to the outstanding principal balance thereof, received in advance of
the final scheduled Due Date which is intended to satisfy an SBA Loan in full.
PRIOR LIEN: With respect to any SBA Loan secured by a lien which is not a
first priority lien, each loan relating to the corresponding Collateral having a
prior priority lien.
REGISTERED HOLDER: With respect to any SBA Loan, the Person identified as
such in the applicable SBA Form 1086, and any permitted assignees thereof.
REIMBURSABLE AMOUNTS: As of any date of determination, an amount payable to
the Servicer and/or a Seller with respect to (i) the Monthly Advances and
Servicing Advances reimbursable pursuant to the Agreement, (ii) any advances
reimbursable pursuant to the Agreement and not previously reimbursed, and (iii)
any other amounts reimbursable to the Servicer or a Seller pursuant to the
Agreement.
RESIDENTIAL PROPERTY: Any one or more of the following, (i) single family
dwelling unit not attached in any way to another unit, (ii) row house, (iii)
two-family house, (iv) low-rise condominium, (v) planned unit development, (vi)
three- or four-family house, (vii) high-rise condominium, (viii) mixed use
building or (ix) manufactured home (as defined in FNMA/FHLMC Seller-Servicers'
Guide) to the extent that it constitutes real property in the state in which it
is located.
RESPONSIBLE OFFICER: When used with respect to the Trustee, any officer
assigned to the Corporate Trust Division, including any Vice President,
Assistant Vice President, any Assistant Secretary, any trust officer or any
other officer of the Trustee customarily performing functions similar to those
performed by any of the above designated officers and also, with respect to a
particular matter, any other officer to whom such matter is referred because of
such officer's knowledge of and familiarity with the particular subject. When
used with respect to a Seller, the President, any Vice President, Assistant Vice
President, or any Secretary or Assistant Secretary.
SAIF: The Savings Association Insurance Fund, or any successor thereto.
SBA FILE: The SBA File maintained with respect to each SBA Loan in
accordance with the Agreement.
SBA FORM 1086: The Secondary Participation Guaranty and Certification
Agreement on SBA Form 1086, pursuant to which investors purchase the SBA
Guaranteed Portion.
SBA LOAN INTEREST RATE: With respect to any date of determination, the then
applicable annual rate of interest borne by an SBA Loan, pursuant to its terms,
which, as of the Cut-Off Date, is shown on the SBA Loan Schedule.
SBA LOAN SCHEDULE: The schedule of SBA Loans attached as an exhibit to the
Agreement, such schedule identifying each SBA Loan by address of the related
premises, and the name of the Obligor and setting forth as to each SBA Loan the
following information: (i) the Principal Balance as of the close of business on
the Cut-Off Date, (ii) the Account Number, (iii) the original principal amount
of the SBA Loan, (iv) the SBA Loan Date and original number of months to
maturity, in months, (v) the SBA Loan Interest Rate as of the Cut-Off Date and
guaranteed rate payable to the Registered Holder and the Agent of the SBA, (vi)
when the first Monthly Payment was due, (vii) the Monthly Payment as of the
Cut-Off Date, (viii) the remaining number of months to maturity as of the
Cut-Off Date, (ix) the Unguaranteed Percentage, (x) the SBA loan number, (xi)
the margin which is added to the Prime Rate to determine the SBA Loan Interest
Rate, and (xii) the lifetime minimum and maximum SBA Loan Interest Rates, if
applicable.
SBA RULES AND REGULATIONS: The Small Business Act, as amended, codified at
15 U.S.C. 631 et seq., all rules and regulations promulgated from time to time
thereunder and the Loan Guaranty Agreement.
SERVICER'S CERTIFICATE: The monthly certificate of the Servicer, delivered
to the Trustee in accordance with the Agreement.
SERVICING OFFICER: Any officer of the Servicer involved in, or responsible
for, the administration and servicing of the SBA Loans whose name appears on a
list of servicing officers furnished to the Trustee by the Servicer, as such
list may from time to time be amended.
SPREAD ACCOUNT CUSTODIAN: , in its capacity as Spread
Account Custodian under the Spread Account Agreement, or any successor thereto.
SUBSERVICER: The Money Store of New York, Inc. or any other person with
whom the Servicer has entered into a Subservicing Agreement and who satisfies
any requirements set forth in the Agreement in respect of the qualification of a
Subservicer.
SUBSERVICING AGREEMENT: Any agreement between the Servicer and any
Subservicer relating to subservicing and/or administration of certain SBA Loans
as provided in the Agreement, a copy of which shall be delivered, along with any
modifications thereto, to the Trustee and the SBA.
TAX RETURN: The federal income tax return to be filed on behalf of the
Trust Fund together with any and all other information reports or returns that
may be required to be furnished to the Certificateholders or filed with the
Internal Revenue Service or any other governmental taxing authority under any
applicable provision of federal, state or local tax laws.
<PAGE>
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS IN CONNECTION WITH THE
OFFER MADE BY THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE SELLERS OR THE UNDERWRITER. THIS PROSPECTUS
SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL,
OR A SOLICITATION OF AN OFFER TO BUY, THE CERTIFICATES BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH
THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO
ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
PAGE
Summary of Terms....................................................S-2
Risk Factors.......................................................S-22
The SBA Loan Pool..................................................S-25
The SBA Loan Program...............................................S-47
Yield, Maturity and Prepayment Considerations......................S-49
The Sellers........................................................S-52
Description of the Agreement and the Certificates..................S-54
The Trustee....................................................... S-66
Federal Income Tax Consequences....................................S-67
ERISA Considerations...............................................S-71
Legal Investment...................................................S-71
Underwriting.......................................................S-72
Ratings............................................................S-72
Legal Matters......................................................S-73
Financial Information..............................................S-73
Annex I............................................................S-74
Index of Principal Terms...........................................S-78
Certain Definitions................................................S-82
PROSPECTUS
Prospectus Supplement............................................... 3
Available Information............................................... 3
Reports to Securityholders.......................................... 4
Incorporation of Certain Documents by Reference..................... 4
Summary of Terms................................................... 5
Risk Factors........................................................ 20
The Trusts.......................................................... 24
Use of Proceeds..................................................... 29
The Representative and the Originators.............................. 29
The SBA Loan Lending Program........................................ 30
Description of the Securities....................................... 36
Credit Enhancement.................................................. 43
Maturity, Prepayment and Yield Considerations....................... 48
The Agreements...................................................... 49
Certain Legal Aspects of the Loans.................................. 61
Federal Income Tax Consequences......................................64
ERISA Considerations.................................................88
Legal Investment Considerations......................................90
Plan of Distribution.................................................90
Legal Matters........................................................91
Experts..............................................................91
Financial Information................................................91
Rating...............................................................91
Index of Principal Terms.............................................92
Appendix I
Appendix II
THE MONEY STORE SBA LOAN
TRUST 199_-_
$______________ Class A Certificates
$____________ Class B Certificates
(Approximate)
THE MONEY STORE INVESTMENT
CORPORATION
THE MONEY STORE COMMERCIAL
MORTGAGE INC.
THE MONEY STORE OF NEW YORK, INC.
The Money Store SBA Loan-
Backed Adjustable Rate
Certificates,
Series 199_-_
PROSPECTUS SUPPLEMENT
[Name of Underwriter]
___________, 199_
<PAGE>
SUBJECT TO COMPLETION
DATED SEPTEMBER 9, 1997.
PROSPECTUS
START HERE
THE MONEY STORE INC.
(REPRESENTATIVE)
THE MONEY STORE ASSET BACKED CERTIFICATES
THE MONEY STORE ASSET BACKED NOTES
(ISSUABLE IN SERIES)
This Prospectus relates to The Money Store Asset Backed Certificates
(the "Certificates") and The Money Store Asset Backed Notes (the "Notes" and
collectively with the Certificates, the "Securities") described herein, issuable
in one or more Series (each a "Series"), which may be sold from time to time on
terms determined at the time of sale and described in the related Supplement to
this Prospectus (each a "Prospectus Supplement"), evidencing specified interests
in, or rights to receive payments from, one or more trust funds (each, a
"Trust"), the primary assets of which will consist of the right to receive
payments and other recoveries attributable to certain unguaranteed interests
(the "Unguaranteed Interests") in one or more pools (each, a "Pool") of certain
loans partially guaranteed by the U.S. Small Business Administration and certain
loans originated in connection with such loans (the "SBA Loans"), and certain
other commercial loans with similar characteristics (the "Non-SBA Loans," and
collectively with the SBA Loans, the "Loans"), and certain other related or
similar assets more particularly described herein (collectively, the "Trust
Assets"). The Trust Assets and other assets of any Trust will be described in
the Prospectus Supplement for the related Series of Certificates and/or Notes.
Certain of the Trust Assets may have been originated by wholly-owned
subsidiaries (the "Originators") of The Money Store Inc. ("The Money Store" or
the "Representative"). Certain other of the Trust Assets may have been acquired
by The Money Store, an Originator or an affiliate thereof from other lenders or
government agencies. In addition, if so specified in the related Prospectus
Supplement, the Trust will include monies on deposit in one or more trust
accounts to be established with a Trustee (as defined herein), which may include
a Pre-Funding Account (as defined herein) which would be used to purchase
additional Trust Assets for the related Trust from time to time during the
Funding Period (as defined herein) specified in the related Prospectus
Supplement. If specified in the related Prospectus Supplement, certain of the
related Securities may evidence a fractional undivided ownership interest in a
Trust which will hold a beneficial ownership interest in another trust fund
which will contain the Trust Assets. Securities may also be entitled to the
benefits of insurance policies, cash accounts, letters of credit, financial
guaranty insurance policies, third party guarantees, guaranties of The Money
Store, supplemental interest payments or other forms of credit enhancement,
maturity protection or derivative instruments, to the extent described in the
related Prospectus Supplement. The Prospectus Supplement for each Series of
Securities will name the entities (which will include The Money Store or one of
its affiliates and may include other entities) which will act, directly or
through one or more sub-servicers, as master servicers (each, in such capacity,
the "Master Servicer") of such Trust Assets.
SEE RISK FACTORS ON PAGE 20 HEREIN FOR A DISCUSSION OF CERTAIN RISK
FACTORS WHICH SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SECURITIES
OFFERED HEREBY.
The date of this Prospectus is ________ __, 1997.
[INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY STATE.]
<PAGE>
Each Series of Securities will be issued in one or more classes (each,
a "Class"). Each Class of Securities of any series will represent the right to
receive, or be secured by, a specified amount of payments of principal and/or
interest on the related Trust Assets in the manner described herein and in the
related Prospectus Supplement. The right of each Class of Securities to receive
payments may be senior or subordinate to the rights of one or more of the other
Classes of such Series. The right of the holders of any Class of Notes
("Noteholders") and the right of the holders of any Class of Certificates
("Certificateholders" and collectively with the Noteholders, "Securityholders"
or "Holders") to receive any distributions of principal and interest will be set
forth in the related Prospectus Supplement. A Series may include two or more
Classes of Certificates and/or Notes which differ as to the timing and priority
of payment, interest rate or amount of distributions in respect of principal or
interest or both. A Series may include one or more Classes of Certificates
and/or Notes entitled to distributions in respect of principal, with
disproportionate, nominal or no interest distributions, or to interest
distributions, with disproportionate, nominal or no distributions in respect of
principal. Distributions on Certificates of any Series will be subordinated to
prior payments due on the related Notes, if any, to the extent described herein
and in the related Prospectus Supplement. The Securities of each Series will
represent fractional undivided ownership interests in the related Trust.
Distributions to Holders of Securities will be made on certain dates
specified in the related Prospectus Supplement (each, a "Remittance Date"),
which may be monthly, quarterly, semi-annually or at such other intervals as are
specified therein. The rate at which any Class of Certificates (the
"Pass-Through Rate") or the rate at which any Class of Notes (the "Interest
Rate") bear interest or the method of calculating such Pass-Through Rate or
Interest Rate, which may be fixed or variable, will be set forth in the related
Prospectus Supplement. Distributions on the Certificates and/or Notes of a
Series will be made only from the assets of the related Trust and certain
related property. The Pass-Through Rate for a Class of Certificates or the
Interest Rate for a Class of Notes that bear interest based upon a floating rate
of interest, as specified in the related Prospectus Supplement, may base such
floating rate upon any of following: (i) the auction procedures described herein
(such Securities being referred to herein as "Auction Rate Securities"), (ii)
the London interbank offered rate for U.S. dollar deposits for a specified
period ("LIBOR") plus an amount set forth in the related Prospectus Supplement ,
(iii) the average bond equivalent rates of weekly auctions of Treasury bills for
a specified period (the "T-Bill Rate") plus an amount set forth in the related
Prospectus Supplement, (iv) the prime lending rate of certain leading U.S.
commercial banks plus an applicable spread, as described in the related
Prospectus Supplement (the "Prime Rate"), or (v) any such other method or
procedures used to determine the floating rate of interest as may be described
in the applicable Prospectus Supplement.
The Securities will not represent an obligation of or interest in the
Representative (except for any Guaranty (as defined herein) issued in connection
with a Series), the Originators, or any affiliate thereof and, except to the
extent described herein or specified in the related Prospectus Supplement, will
not be insured or guaranteed by any governmental agency or instrumentality or
(except as specified in the Prospectus Supplement) by any other person. Unless
otherwise specified in the related Prospectus Supplement, the only obligations
of the Representative or the Originators with respect to a Series of Securities
will be pursuant to certain limited representations and warranties. Except for
certain representations and warranties relating to the Trust Assets and certain
other exceptions, the Master Servicer's obligations with respect to the related
Series of Certificates and/or Notes will be limited to its contractual servicing
obligations. If the amount available for distribution to Holders on any
Remittance Date is less than the amount due to them, the Master Servicer, to the
extent provided in the related Prospectus Supplement, may be obligated, under
certain terms and conditions, to advance cash to such Holders, to the extent
such deficiency is attributable to delinquent payments of principal and/or
interest during the immediately preceding Due Period (as defined herein). See
"Description of the Securities--Monthly Advances and Compensating Interest."
The yield to Holders on each Class of Certificates and/or Notes of a
Series may be affected by the rate of payment of principal (including
prepayments) of the Trust Assets in the related Trust and the timing of receipt
of such payments as described herein and in the related Prospectus Supplement. A
Trust may be subject to early termination under the circumstances described
herein and in the related Prospectus Supplement.
If specified in a Prospectus Supplement, an election may be made to
treat each Trust as a "real estate mortgage investment conduit" ("REMIC") for
federal income tax purposes. See "Federal Income Tax Consequences."
<PAGE>
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS OR THE RELATED PROSPECTUS SUPPLEMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT
PASSED ON OR ENDORSED THE MERITS OF THIS OFFERING.
ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
Offers of the Securities may be made through one or more different
methods, including offerings through underwriters, as more fully described under
"Plan of Distribution" herein and in the related Prospectus Supplement. The
intention of any underwriter to make a secondary market in the Securities will
be set forth in the related Prospectus Supplement. There can be no assurance
that a secondary market for the Securities will develop, or if it does develop,
that it will continue. This Prospectus may not be used to consummate sales of a
Series of Securities unless accompanied by a Prospectus Supplement.
Until 90 days after the date of each Prospectus Supplement, all
dealers effecting transactions in the securities covered by such Prospectus
Supplement, whether or not participating in the distribution thereof, may be
required to deliver such Prospectus Supplement and this Prospectus. This is in
addition to the obligation of dealers to deliver a Prospectus and Prospectus
Supplement when acting as underwriters and with respect to their unsold
allotments or subscriptions.
PROSPECTUS SUPPLEMENT
The Prospectus Supplement relating to a Series of Certificates and/or
Notes to be offered hereunder, among other things, will set forth with respect
to such Series of Certificates and/or Notes: (i) the aggregate principal amount,
the Pass-Through Rate, Interest Rate or Rates or other applicable annual rate or
rates of interest (or the manner of determining such rate or rates) and
authorized denominations of each Class of such Certificates and/or Notes; (ii)
certain information concerning the Trust Assets and insurance policies, cash
accounts, letters of credit, financial guaranty insurance policies, third party
guarantees, guaranty of The Money Store, supplemental interest payments or other
forms of credit enhancement or maturity protection or other derivative
instruments, if any, relating to the Pools or all or part of the related
Certificates and/or Notes; (iii) the specified interest of each Class of
Certificates and/or Notes in, and manner and priority of, the distributions on
the Trust Assets; (iv) information as to the nature and extent of subordination
with respect to such Series of Certificates and/or Notes, if any; (v) the
Remittance Dates; (vi) information as to the Master Servicer; (vii) the
circumstances, if any, under which each Trust may be subject to early
termination; (viii) whether the Representative intends to elect to cause the
Trust to be treated as a REMIC; and (ix) additional information with respect to
the plan of sale of such Certificates and/or Notes.
AVAILABLE INFORMATION
The Representative has filed a Registration Statement under the
Securities Act of 1933, as amended (the "1933 Act"), with the Securities an
Exchange Commission (the "Commission") with respect to the Securities. The
Registration Statement and amendments thereof and to the exhibits thereto, as
well as such reports and other information, are available for inspection without
charge at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549; 7 World Trade Center, 13th Floor,
New York, New York 10048; and Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661- 2511. Copies of the Registration
Statement and amendments thereof and exhibits thereto may be obtained from the
Public Reference Section of the Commission, 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates. The Commission also maintains a Website
(http://www.sec.gov) that contains reports, proxy and information statements and
other information filed electronically with the Commission.
No person has been authorized to give any information or to make any
representation other than those contained in this Prospectus and any Prospectus
Supplement with respect hereto and, if given or made, such information or
representations must not be relied upon. This Prospectus and any Prospectus
Supplement with respect hereto do not constitute an offer to sell or a
solicitation of an offer to buy any securities other than the Securities offered
hereby and thereby nor an offer of the Securities to any person in any state or
other jurisdiction in which such offer would be unlawful. The delivery of this
Prospectus at any time does not imply that information herein is correct as of
any time subsequent to its date.
REPORTS TO SECURITYHOLDERS
Periodic and annual reports concerning any Securities and the related
Trust will be provided to the Securityholders as described in the related
Prospectus Supplement. If specified in the related Prospectus Supplement, a
Series of Certificates and/or Notes may be issuable in book-entry form. In such
event, the related Certificates and/or Notes will be registered in the name of
Cede & Co. ("Cede"), the nominee of The Depository Trust Company ("DTC") or
another nominee. All reports will be provided to Cede or such other nominee,
which in turn will provide such reports to Participants and Indirect
Participants (as defined herein) of DTC or such other entities as described in
the related Prospectus Supplement. Such Participants and Indirect Participants
will then forward such reports to the beneficial owners of Securities. See
"Description of the Securities - Book-Entry Registration."
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents filed by or on behalf of the Trust referred to in the
accompanying Prospectus Supplement with the Commission pursuant to Section
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), subsequent to the date of this Prospectus and prior to the
termination of the offering of the Securities issued by such Trust shall be
deemed to be incorporated by reference in this Prospectus and the related
Prospectus Supplement and to be a part hereof from the date of the filing of
such documents. With respect to any Class of Certificates and/or Notes that is
supported by a Guaranty of The Money Store (a "Guaranty"), The Money Store's
Annual Report on Form 10-K for the year ended December 31, 1996, and Quarterly
Reports on Form 10-Q for the periods ended March 31 and June 30, 1997, which
have been filed with the Commission, are hereby incorporated by reference in
this Prospectus and the related Prospectus Supplement . With respect to any
Class of Securities that is supported by a Guaranty, all documents filed by The
Money Store pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934, as amended, subsequent to the date of this Prospectus and
prior to the termination of the offering of the Securities shall be deemed to be
incorporated by reference into this Prospectus and the related Prospectus
Supplement and to be a part hereof from the respective dates of filing such
documents. Any statement contained herein or in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein (or in the accompanying Prospectus Supplement) or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute part of this Prospectus. The Representative will provide without
charge to each person to whom a copy of the Prospectus is delivered, on the
written or oral request of any such person, a copy of any or all of the
documents incorporated herein by reference, except the exhibits to such
documents (unless such exhibits are specifically incorporated by reference in
such documents). Requests for such copies should be directed to The Money Store
Inc., 3301 C Street, Suite 100-M, Sacramento, California 95816, Attention:
Investor Relations, Telephone: (916) 446-5000.
<PAGE>
SUMMARY OF TERMS
This summary is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus and in the related Prospectus
Supplement. Capitalized terms used but not defined in this Prospectus shall have
the meanings assigned to such terms elsewhere in this Prospectus.
Securities
Offered........................... The Money Store Asset Backed Certificates
(the "Certificates") and The Money Store
Asset Backed Notes (the "Notes"). Notes are
issuable from time to time in Series pursuant
to an Indenture (an "Indenture"), and
Certificates are issuable from time to time
in Series pursuant to either a Pooling and
Servicing Agreement (a "Pooling and Servicing
Agreement") or a Trust Agreement (a "Trust
Agreement"). As used herein, "Agreements"
means, collectively, with respect to a Series
of Certificates, the related Pooling and
Servicing Agreement or the related Trust
Agreement, with respect to a Series of Notes,
the related Indenture and the related Sale
and Servicing Agreement, as the context
requires, and with respect to a Series of
Securities, the relevant combination of
Agreements for such Series. Each Certificate
of a Series will evidence an interest in the
Trust Fund or Trust Funds for such Series, as
specified in the related Prospectus
Supplement. Each Series of Securities will
consist of one or more Classes, each Class
may differ in, among other things, the
amounts allocated to and the priority of
principal and interest payments. The
Securities of each Class will be issued in
fully registered form in the denominations
specified in the related Prospectus
Supplement. If so specified in the related
Prospectus Supplement, the Securities or
certain Classes of such Securities offered
thereby may be available in book- entry form
only.
Issuers........................... Certain trust funds (each, a "Trust")
represented by The Money Store or its
affiliates, the primary assets of which will
be the right to receive payments and other
recoveries attributable to one or more Pools
of Loans and certain other Trust Assets.
Representative
and Master
Servicer.......................... The Money Store Inc. ("The Money Store"), a
New Jersey corporation or certain of its
affiliates. The Prospectus Supplement
relating to any Series of Certificates and/or
Notes will name the entities (which may
include The Money Store or one of its
affiliates and may additionally include other
unrelated entities) which will act, directly
or through one or more Sub-Servicers (as
defined herein), as master servicers (each,
in such capacity, the "Master Servicer"), on
the terms and conditions set forth in the
related Pooling and Servicing Agreement or
Sale and Servicing Agreement (a "Sale and
Servicing Agreement"). The principal offices
of The Money Store are located in Sacramento,
California and Union, New Jersey. See "The
Representative and the Originators."
The Trust
Assets............................ The Securities will evidence fractional
undivided ownership interests in or rights to
receive payments from certain Trusts further
described herein. The primary assets of each
Trust may consist of one or more pools (each,
a "Pool") of assets (the "Trust Assets"),
which may include (i) the Unguaranteed
Interest of loans originated under the
U.S. Small Business Administration (the
"SBA") general business loan program created
under Section 7(a) of the Small Business Act
of 1953 ("SBA Section 7(a) Loans"), (ii)
loans made to small businesses in connection
with the origination of an SBA Section 7(a)
Loan, which related SBA Section 7(a) Loan may
or may not be part of a Trust Fund (the
"Section 7(a) Companion Loans"), (iii)
loans originated under the SBA's 504 program
("SBA 504 Loans," and collectively with the
SBA Section 7(a) Loans and the Section 7(a)
Companion Loans, the "SBA Loans") and (iv)
loans originated pursuant to the Conventional
Commercial Loan Program (as defined below)
that have many similar characteristics to SBA
Section 7(a) Loans or SBA 504 Loans but were
not originated pursuant to an SBA program
(the "Non-SBA Loans"). The SBA Loans and the
Non-SBA Loans are referred to herein
collectively as the "Loans".
The "Unguaranteed Interest" will equal (i) as
to any SBA Section 7(a) Loan, all payments
and other recoveries on such SBA Section 7(a)
Loan not constituting the Guaranteed Interest
therein and certain other amounts to be
described in a Prospectus Supplement that
will not be transferred to the related Trust
and (ii) as to any Section 7(a) Companion
Loan or SBA 504 Loan or Non-SBA Loan, all
payments and other recoveries on such Section
7(a) Companion Loan, SBA 504 Loan or Non-SBA
Loan.
The payment terms of the Loans to be included
in any Pool will be described in the related
Prospectus Supplement and may include any of
the following features, combinations thereof
or other features described in the related
Prospectus Supplement:
(a) Interest may be payable at a fixed rate
(a "Fixed Rate") or may be payable at a
rate that is adjustable from time to
time in relation to an index, that may
be fixed for a period of time or under
certain circumstances and is followed by
an adjustable rate, a rate that
otherwise varies from time to time, or a
rate that is convertible from an
adjustable rate to a fixed rate (each,
an "Adjustable Rate"). The specified
rate of interest on a Loan is its
"Mortgage Interest Rate." Changes to an
Adjustable Rate may be subject to
periodic limitations, maximum rates,
minimum rates or a combination of such
limitations. Accrued interest may be
deferred and added to the principal of a
Loan for such periods and under such
circumstances as may be specified in the
related Prospectus Supplement. Loans may
permit the payment of interest at a rate
lower than the Mortgage Interest Rate
for a period of time or for the life of
the Loan, and the amount of any
difference may be contributed from funds
supplied by the seller of the properties
securing the related Loan (the
"Mortgaged Properties") or another
source or may be treated as accrued
interest and added to the principal of
the Loan.
(b) Principal may be payable on a level
basis to fully amortize the Loan over
its term, may be calculated on the basis
of an assumed amortization schedule that
is significantly longer than the
original term to maturity or on an
interest rate that is different from the
Mortgage Interest Rate, or may not be
amortized during all or a portion of the
original term. Payment of all or a
substantial portion of the principal may
be due on maturity (a "balloon"
payment). From time to time, principal
may include interest that has been
deferred and added to the principal
balance of the Loan.
(c) Monthly payments of principal and
interest may be fixed for the life of
the Loan, may increase over a specified
period of time ("graduated payments"),
or may change from period to period.
Loans may include limits on periodic
increases or decreases in the amount of
monthly payments and may include maximum
or minimum amounts of monthly payments.
(d) Prepayments of principal may be subject
to a prepayment fee, which may be fixed
for the life of the Loan or may adjust
or decline over time, and may be
prohibited for the life of the Loan or
for certain periods ("Lockout Periods").
Certain Loans may permit prepayments
after expiration of the applicable
Lockout Period and may require the
payment of a prepayment fee in
connection with any such subsequent
prepayment. Other Loans may permit
prepayments without payment of a fee
unless the prepayment occurs during
specified time periods. The Loans may
include due-on-sale clauses which permit
the mortgagee to demand payment of the
entire Loan in connection with the sale
or certain other transfers of the
related Mortgaged Properties. Other
Loans may be assumable by persons
meeting the then applicable underwriting
standards of the originator.
The Mortgaged Properties relating to Loans
may be located in any one of the fifty
states, the District of Columbia, the
Commonwealth of Puerto Rico or any other
commonwealth, territory or possession of the
United States. Unless otherwise specified in
the related Prospectus Supplement, all of the
Mortgaged Properties will be covered by
standard hazard insurance policies ("Standard
Hazard Insurance Policies") insuring against
losses due to fire and various other causes.
As set forth in the related Prospectus
Supplement, certain of the Loans underlying a
given Series of Securities may have been
originated by the Representative, the
Originators or affiliates thereof and certain
Loans may have been purchased by the
Representative, an Originator or an affiliate
thereof in the open market or in privately
negotiated transactions, including
transactions with entities affiliated with
the Representative.
The SBA Section 7(a) Loans will have been
originated under Section 7(a) (the "Section
7(a) Program") of the Small Business Act of
1953 (the "SBA Act"). The Section 7(a)
Program was intended to encourage lenders to
provide loans to qualifying small businesses.
To assist qualified borrowers in obtaining
more financing when needed, the Originators
originate Section 7(a) Companion Loans in
conjunction with the origination of an SBA
Section 7(a) Loan to the same borrower.
Although the Section 7(a) Companion Loan is
not guaranteed by the SBA, it is secured by a
lien on collateral prior to the lien of the
related SBA Section 7(a) Loan.
The SBA has also established a program (the
"SBA 504 Loan Program") to encourage lenders
to provide fixed asset financing to
qualifying small businesses. In the SBA 504
Loan Program, the Originators provide
approximately 50% of project costs in a
conventional loan agreement, with borrowers
providing a minimum 10% equity contribution.
The SBA provides the remainder of the
financing. The loans originated by the
Originators under the SBA 504 Loan Program
are not guaranteed by the SBA. The funds used
by the SBA to originate its portion of an SBA
504 Loan are generated by issuing
SBA-guaranteed debentures on behalf of a
certified development company.
SBA Section 7(a) Loans originated by the
Originators generally range in size from
$50,000 to $1.3 million. The maximum amount
for a Section 7(a) Companion Loans is
currently $1,750,000, although this amount
may be increased where the Originators
believe the collateral or other factors
warrant such increase. The maximum size of an
SBA 504 Loan originated by the Originators is
currently $1.75 million.
The Non-SBA Loans will have been originated
or purchased by the Originators under the
programs described under "The Trusts--Non-SBA
Loans."
The Prospectus Supplement for each Series of
Securities will specify with respect to all
Loans expected to be included in the related
Pool as of the related closing date, among
other things, (i) the expected aggregate
outstanding principal balance and the
expected average outstanding principal
balance of the Loans in such Pool as of the
date specified in the Prospectus Supplement,
(ii) the largest expected principal balance
and the smallest expected principal balance
of any of the Loans, (iii) the types of
Mortgaged Properties and/or other assets
securing the Loans, (iv) the original terms
to maturity of the Loans, (v) the expected
weighted average term to maturity of the
Loans as of the date specified in the
Prospectus Supplement and the expected range
of the terms to maturity, (vi) the earliest
origination date and latest maturity date of
any of the Loans, (vii) the expected weighted
average Loan-to-Value Ratio of the Loans,
(viii) the expected weighted average Mortgage
Rate and ranges of Mortgage Rates borne by
the Loans, (ix) in the case of Loans having
Adjustable Rates, the expected weighted
average of the Adjustable Rates as of the
date set forth in the Prospectus Supplement
and maximum permitted Adjustable Rates, if
any, (x) the amount of any Guaranty Insurance
Policy, Mortgage Pool Insurance Policy,
Special Hazard Insurance Policy or Bankruptcy
Bond (each as defined herein) to be
maintained with respect to such Pool, (xi)
the amount, if any, and terms of any other
credit enhancement or other derivative
instruments to be provided with respect to
all or any Loans or the Pool and (xii) the
expected geographic location of the Mortgaged
Properties.
Pre-Funding
Account........................... If provided in the related Prospectus
Supplement, the original principal amount of
a Series of Securities may exceed the
principal balance of the Trust Assets
initially being delivered to the Trustee.
Cash in an amount up to the amount of such
difference (such amount, the "Pre-Funded
Amount") will be deposited into a separate
trust account (the "Pre-Funding Account")
maintained with the Trustee for the benefit
of the Holders. During the period set forth
in the related Prospectus Supplement (the
"Funding Period"), the Pre-Funded Amount in
the Pre-Funding Account may be used to
purchase additional Trust Assets for the
related Trust subject to the satisfaction of
certain conditions specified under the
Agreements.
For a Trust that elects to be characterized
as either a REMIC or a grantor trust under
current federal income tax laws, the maximum
length of the related Funding Period will not
exceed three calendar months or 90 days,
respectively, from the date of issuance of
the Securities and otherwise the maximum
length of the Funding Period will not exceed
the period set forth in the related
Prospectus Supplement. The amount of the
initial Pre-Funded Amount is intended not to
exceed the aggregate principal balance of
additional Trust Assets that the
Representative anticipates will be acquired
and conveyed to the Trust during the
applicable Funding Period.
Prior to the conveyance of any additional
Trust Assets to the Trust, the Repre
sentative will be required to give notice of
the additional Trust Assets to be conveyed to
the Trust to the Trustee(s) and any
third-party credit enhancement provider. Upon
the satisfaction of the conditions set forth
in the Agreement, the Trustee will release
from the Pre-Funding Account the necessary
funds to purchase the additional Trust Assets
to be conveyed to the Trust on such date. If
any Pre-Funded Amount remains on deposit in
the Pre-Funding Account at the end of the
Funding Period, such amount, in the amounts
and in the manner specified in the related
Prospectus Supplement, will be used to prepay
some or all Classes of the related Series of
Certificates and/or Notes.
Multi-Party
Agreement......................... In connection with each issuance of
Securities relating to SBA Section 7(a)
Loans, the applicable Originators, the Master
Servicer and the Trustee will enter into an
agreement (the "Multi-Party Agreement"),
which will set forth the relationship of the
parties with respect to the SBA Section 7(a)
Loans and the proceeds thereof and the
consent of the SBA to the transactions
contemplated by the related Agreement.
Revolving Period and
Amortization Period;
Retained Interest................. If the related Prospectus Supplement so
provides, there may be a period commencing on
the date of issuance of a Class or Classes of
Notes and/or Certificates of a Series and
ending on the date set forth in the related
Prospectus Supplement (each, a "Revolving
Period") during which limited or no principal
payments will be made to one or more Classes
of Notes and/or Certificates of the related
Series as are identified in such Prospectus
Supplement. Some or all collections of
principal otherwise allocated to such Classes
of Notes or Certificates may be (i) utilized
during the Revolving Period to acquire
additional Trust Assets which satisfy the
criteria described under "The
Trusts--General" and the criteria set forth
in the related Prospectus Supplement, (ii)
held in an account and invested in Permitted
Investments (as defined herein), for later
distribution to Securityholders, (iii)
applied to those Notes or Certificates for
such Series, if any, specified in the related
Prospectus Supplement as then are in
amortization, or (iv) otherwise applied as
specified in the related Prospectus
Supplement.
An "Amortization Period" is the period during
which an amount of principal is payable to
Holders of Securities which, during the
Revolving Period, were not otherwise entitled
to such payments. If so specified in the
related Prospectus Supplement, during an
Amortization Period all or a portion of
principal collections on the Loans may be
applied as specified above for a Revolving
Period and, to the extent not so applied,
will be distributed to the Classes of Notes
and/or Certificates for such Series specified
in the related Prospectus Supplement as then
being entitled to payments of principal. In
addition, if so specified in the related
Prospectus Supplement, amounts deposited in
certain accounts for the benefit of one or
more Classes of Notes or Certificates for
such Series may be released from time to time
or on a specified date and applied as a
payment of principal on such Classes of Notes
and/or Certificates. The related Prospectus
Supplement will set forth the circumstances
which will result in the commencement of an
Amortization Period.
Each Series which has a Revolving Period may
also issue to the Representative or one of
its affiliates a certificate evidencing an
undivided beneficial interest (a "Retained
Interest") in such Series not represented by
the other Securities issued by the related
Trusts. As further described in the related
Prospectus Supplement, the value of such
Retained Interest will fluctuate as the
amount of Notes and Certificates of the
related Series of Securities outstanding is
reduced.
Description of the
Certificates.................... Each Certificate will represent a fractional
undivided ownership interest in the Trust
created pursuant to the related Agreement.
The primary assets of such Trust will be a
Pool of Loans and certain other Trust Assets.
The Certificates of any Series may be issued
in one or more Classes, as specified in the
related Prospectus Supplement. A Series of
Certificates may include one or more Classes
of senior Certificates (collectively, "Senior
Certificates") which receive certain
preferential treatment specified in the
related Prospectus Supplement with respect to
one or more Classes of subordinate
Certificates (collectively, the "Subordinated
Certificates"). In addition, a Series may
include one or more Series entitled to (i)
principal payments with disproportionate,
nominal or no interest payments or (ii)
interest payments with disproportionate,
nominal or no principal payments (such
Certificates, "Strip Certificates"). Certain
Series or Classes of Certificates may be
covered by a Guaranty Insurance Policy,
Mortgage Pool Insurance Policy, Special
Hazard Insurance Policy, Bankruptcy Bond or
other insurance policies, cash accounts,
letters of credit, financial guaranty
insurance policies, third party guarantees,
supplemental interest payments or other forms
of credit enhancement or maturity protection,
or derivative products, as described herein
and in the related Prospectus Supplement.
Each Class of Certificates within a Series
will evidence the interests specified in the
related Prospectus Supplement, which may (i)
include the right to receive distributions
allocable only to principal, only to interest
or to any combination thereof; (ii) include
the right to receive distributions only of
prepayments of principal throughout the lives
of the Certificates or during specified
periods; (iii) be subordinated in its right
to receive distributions of scheduled
payments of principal, prepayments of
principal, interest or any combination
thereof to one or more other Classes of
Certificates of such Series throughout the
lives of the Certificates or during specified
periods or may be subordinated with respect
to certain losses or delinquencies; (iv)
include the right to receive such
distributions only after the occurrence of
events specified in the Prospectus
Supplement; (v) include the right to receive
distributions in accordance with a schedule
or formula or on the basis of collections
from designated portions of the assets in the
related Trust; (vi) include, as to
Certificates entitled to distributions
allocable to interest, the right to receive
interest at a fixed rate or a floating rate;
and (vii) include, as to Certificates
entitled to distributions allocable to
interest, the right to distributions
allocable to interest only after the
occurrence of events specified in the related
Prospectus Supplement, and in each case, may
accrue interest until such events occur, as
specified in such Prospectus Supplement. The
timing and amounts of such distributions may
vary among Classes, over time, or otherwise
as specified in the related Prospectus
Supplement. The Pass-Through Rate for a Class
of Certificates that pay interest based upon
a floating rate of interest, as specified in
the related Prospectus Supplement, may base
such floating rate upon any of following: (i)
the auction procedures for Auction Rate
Securities described herein, (ii) LIBOR plus
an amount set forth in the related Prospectus
Supplement, (iii) the T-Bill Rate plus an
amount set forth in the related Prospectus
Supplement, (iv) the Prime Rate plus an
applicable spread, as set forth in the
related Prospectus Supplement, or (v) any
such other method or procedures used to
determine the floating rate of interest as
may be described in the applicable Prospectus
Supplement.
The Certificates will be issuable in fully
registered form, in minimum denominations of
$1,000 and integral multiples of $1,000 in
excess thereof (or such other amounts as may
be set forth in a Prospectus Supplement),
except that one Certificate of each Class may
be issued in a different denomination. See
"Description of Securities."
With respect to any Series of Securities
including one or more Classes of Notes,
distributions in respect of the Certificates
may be subordinated in priority of payment to
payments on the Notes of such Series, to the
extent specified in the related Prospectus
Supplement.
Description of the Notes.......... Any Series of Securities may include one or
more Classes of Notes, as specified in the
related Prospectus Supplement, each of which
will be issued pursuant to an Indenture and
will be treated as debt obligations of the
related Trust.
Unless otherwise specified in the related
Prospectus Supplement, Notes will be
available for purchase in denominations of
$1,000 and integral multiples of $1,000 (or
such other accounts as may be set forth in a
Prospectus Supplement), except that one Note
of each Class may be issued in a different
denomination, in book-entry form or in
definitive form, as specified in the related
Prospectus Supplement. See "Description of
the Securities."
Each Class of Notes will have a stated
principal amount and will bear interest at
the Interest Rate or Rates as specified in
the related Prospectus Supplement, which may
be different for each Class of Notes and may
be fixed, variable, adjustable, or any
combination of the foregoing. The related
Prospectus Supplement will specify the
Interest Rate for each Class of Notes or the
method for determining the Interest Rate. The
Interest Rate for a Class of Notes that pay
interest based upon a floating rate of
interest, as specified in the related
Prospectus Supplement, may base such floating
rate upon any of following: (i) the auction
procedures for Auction Rate Securities
described herein, (ii) LIBOR plus an amount
set forth in the related Prospectus
Supplement, (iii) the T-Bill Rate plus an
amount set forth in the related Prospectus
Supplement, (iv) the Prime Rate plus an
applicable spread, as set forth in the
related Prospectus Supplement, or (v) any
such other method or procedures used to
determine the floating rate of interest as
may be described in the applicable Prospectus
Supplement. Each Note may also represent a
fractional undivided interest in, or be
entitled to receive payments from, monies on
deposit, if any, in the Pre-Funding Account
as specified in the related Prospectus
Supplement and any other account established
for the benefit of Noteholders, as specified
in the related Prospectus Supplement.
A Series may include two or more Classes of
Notes which differ as to the timing and
priority of payment, seniority, allocations
of loss, Interest Rate or amount of payments
of principal or interest, or as to which
payments of principal or interest may or may
not be made upon the occurrence of specified
events or on the basis collections from
designated portions of the Trust Assets for
such Series. In addition, a Series may
include one or more Classes of Notes entitled
to (i) principal payments with
disproportionate, nominal or no interest
payments or (ii) interest payments with
disproportionate, nominal or no principal
payments (such Notes, "Strip Notes"). A
Series of Notes may include one or more
Classes of senior Notes (collectively,
"Senior Notes") which receive certain
preferential treatment specified in the
related Prospectus Supplement with respect to
one or more Classes of subordinate Notes
(collectively, the "Subordinated Notes").
Certain Series or Classes of Notes may be
covered by a Guaranty Insurance Policy,
Mortgage Pool Insurance Policy, Special
Hazard Insurance Policy, Bankruptcy Bond or
other insurance policies, cash accounts,
letters of credit, financial guaranty
insurance policies, third party guarantees,
supplemental interest payments or other forms
of credit enhancement or maturity protection
or derivative instruments, as described
herein and in the related Prospectus
Supplement.
Credit
Enhancement ...................... The Trust Assets in a Trust or the Securities
of one or more Classes in the related Series
may have the benefit of one or more types of
credit enhancement, as described in the
related Prospectus Supplement. The protection
against losses afforded by any such credit
support may be limited. Such credit
enhancement may include one or more of the
following types:
A. Subordination
and Reserve
Accounts.................... The rights of all Certificateholders will be
subordinated to the rights of all Noteholders
of a Series to receive distributions to the
extent described in the related Prospectus
Supplement, with respect to the Trust Assets
and other assets in the related Trust. The
rights of the holders of Subordinated
Certificates and/or Subordinated Notes, as
the case may be (collectively, "Subordinated
Securities"), of a Series to receive
distributions will be subordinated to the
rights of the holders of the Senior
Certificates and/or Senior Notes, as the case
may be (collectively, "Senior Securities"),
of the same Series to receive distributions
to the extent described in the related
Prospectus Supplement. This subordination is
intended to enhance the likelihood of regular
receipt by holders of Senior Securities of
the full amount of payments which such
holders would be entitled to receive if there
had been no losses or delinquencies. The
protection afforded to the holders of Senior
Securities through subordination may be
accomplished by the preferential right of
such holders to receive, prior to any
distribution being made in respect of the
related Subordinated Securities the amounts
of principal and interest due to them on each
Remittance Date out of the funds available
for distribution on such date in the related
Distribution Account (as defined herein) to
the extent described in the related
Prospectus Supplement. The protection
afforded to the holders of Senior Securities
through subordination also may be
accomplished by allocating certain types of
losses or delinquencies to the related
Subordinated Securities to the extent
described in the related Prospectus
Supplement.
If so specified in the related Prospectus
Supplement, the same Class of Securities may
constitute Senior Certificates and/or Senior
Notes, as the case may be, with respect to
certain types of payments or certain losses
or delinquencies and Subordinated
Certificates and/or Subordinated Notes, as
the case may be, with respect to other types
of payments or losses or delinquencies. If so
specified in the related Prospectus
Supplement, subordination may apply only in
the event of certain types of losses not
covered by other forms of credit support,
such as hazard losses not covered by Standard
Hazard Insurance Policies or losses due to
the bankruptcy of a Mortgagor not covered by
a Bankruptcy Bond. If further specified in
the related Prospectus Supplement, one or
more reserve accounts (each, a "Reserve
Account") may be established and maintained,
in whole or in part, by the deposit therein
of distributions allocable to the holders of
Subordinated Certificates and/or Subordinated
Notes, as the case may be, for a specified
time or until a specified level is reached.
The related Prospectus Supplement will set
forth information concerning the amount of
subordination of a Class or Classes of
Subordinated Certificates and/or Subordinated
Notes, as the case may be, in a Series, the
circumstances in which such subordination
will be applicable, the manner, if any, in
which the amount of subordination will
decrease over time, the manner of funding any
Reserve Account, and the conditions under
which amounts in any such Reserve Account
will be used to make distributions to holders
of Senior Certificates and/or Senior Notes,
as the case may be, or released to holders of
Subordinated Certificates and/or Subordinated
Notes, as the case may be, from the related
Trust.
B. Guaranty
Insurance
Policy...................... A certificate or note guaranty insurance
policy (each a "Guaranty Insurance Policy")
may be obtained and maintained for each Class
or Series of Certificates and/or Notes.
Guaranty Insurance Policies generally
unconditionally and irrevocably guarantee
that the full amount of the distributions of
principal and interest ("Insured Payments"),
as well as any other amounts specified in the
related Prospectus Supplement, will be
received by an agent of the Trustee, for
distribution by the Trustee to the Holders of
the covered Securities. Guaranty Insurance
Policies may have certain limitations set
forth in the related Prospectus Supplement,
including (but not limited to) limitations on
the insurer's obligation to guarantee the
Master Servicer's obligation to repurchase or
substitute for any Loans, to guarantee any
specified rate of prepayments or to provide
funds to redeem Securities on any specified
date.
C. Spread
Amount........................ If so specified in the related Prospectus
Supplement, certain Classes of Certificates
and/or Notes may be entitled to receive
limited acceleration of principal relative to
the amortization of the related Trust Assets.
The accelerated amortization will be achieved
by applying certain excess interest collected
on the Trust Assets to the payment of
principal on such Classes of Securities. This
acceleration feature is intended to create an
amount (the "Spread Amount"), resulting from,
and generally equal to, the excess of the
aggregate principal balances of the
applicable Trust Assets over the principal
balances of the applicable Classes of
Securities. Once the required Spread Amount
is reached, and subject to the provisions
described in the next sentence and in the
related Prospectus Supplement, the
acceleration feature will cease, unless
necessary to maintain the required level of
the Spread Amount. The applicable Agreement
may provide that, subject to certain floors,
caps and triggers, the required level of the
Spread Amount may increase or decrease over
time. An increase would result in a temporary
period of accelerated amortization of the
applicable Classes of Securities to increase
the actual level of the Spread Amount to its
required level; a decrease would result in a
temporary period of decelerated amortization
to reduce the actual level of the Spread
Amount to its required level. An Agreement
also may provide that after one or more
Classes of Securities have been paid to the
required level of the Spread Amount, excess
interest, together with certain other excess
amounts, may be applied to make-up shortfalls
in, or accelerate the amortization of, other
Classes of Securities.
D. Mortgage Pool
Insurance
Policy...................... A mortgage pool insurance policy or policies
("Mortgage Pool Insurance Policy") may be
obtained and maintained for each Series
pertaining to Loans, limited in scope,
covering defaults on the related Loans in an
initial amount equal to a specified
percentage of the aggregate principal balance
of all Loans included in the Pool as of the
Cut-Off Date or such other date as is
specified in the related Prospectus
Supplement.
E. Special Hazard
Insurance
Policy......................... In the case of Loans certain physical risks
that are not otherwise insured against by
Standard Hazard Insurance Policies may be
covered by a special hazard insurance policy
or policies (a "Special Hazard Insurance
Policy"). The level of coverage of each
Special Hazard Insurance Policy will be
specified in the related Prospectus
Supplement.
F. Bankruptcy
Bonds........................ A mortgagor bankruptcy bond or bonds
("Bankruptcy Bond") may be obtained to cover
certain losses resulting from a reduction by
a bankruptcy court of scheduled payments of
principal or interest on a Loan or a
reduction by such court of the principal
amount of a Loan, and will cover certain
unpaid interest on the amount of such a
principal reduction. The level of coverage of
each Bankruptcy Bond will be specified in the
related Prospectus Supplement.
G. Cross
Support..................... If so specified in the Prospectus Supplement,
the ownership interests of separate Trusts or
separate groups of assets may be evidenced by
separate Classes of the related Series of
Certificates and/or Notes. In such case,
credit support may be provided by a
cross-support feature which requires that
distributions be made with respect to certain
Certificates and/or Notes evidencing
interests in one or more Trusts or asset
groups prior to distributions to other
Certificates and/or Notes evidencing
interests in other asset groups or Trusts. If
specified in the related Prospectus
Supplement, the coverage provided by one or
more forms of credit support may apply
concurrently to two or more separate Trusts,
without priority among such Trusts, until the
credit support is exhausted. If applicable,
the Prospectus Supplement will identify the
Trusts or asset groups to which such credit
support relates and the manner of determining
the amount of the coverage provided thereby
and of the application of such coverage to
the identified Trusts or asset groups.
H. Supplemental
Interest
Payments.................... If so specified in the Prospectus Supplement,
one or more Classes of Certificates and/or
Notes may be entitled to receive supplemental
interest payments under specified
circumstances. Supplemental interest payments
will be available to fund some or all of the
difference, if any, between the interest owed
to a Class of Securities on a Remittance Date
and the interest that would be available to
pay such interest assuming no defaults or
delinquencies on the Trust Assets. Such
differences may result if the interest rates
on the applicable Classes of Securities are
based upon an index that differs from the
index used in determining the interest rates
on the Trust Assets. Except as otherwise
provided in a Prospectus Supplement,
supplemental interest payments will not be
available to fund shortfalls resulting from
delinquencies or defaults on the Trust
Assets.
I. Maturity
Protection.................... If so specified in the Prospectus Supplement,
one or more Classes of Certificates and/or
Notes may be entitled to third-party payments
to help provide that the holders of such
Securities receive their unpaid principal on
or prior to a specified date.
J. The Guaranty.................. If so specified in the Prospectus Supplement,
and in order to provide additional credit
enhancement, The Money Store may provide a
guaranty of amounts due on certain Classes of
Certificates and/or Notes. The amount and
formula for calculating such guaranty shall
be as set forth in the Prospectus Supplement.
K. Other Insurance,
Guarantees, Swaps,
and Similar Instruments
or Agreements.................. If specified in the related Prospectus
Supplement, a Trust may include in lieu of
some or all of the foregoing or in addition
thereto letters of credit, financial guaranty
insurance policies, other third party
guarantees, limited guarantees or insurance
from agencies or instrumentalities of the
United States, and other arrangements for
maintaining timely payments or providing
additional protection against losses on the
assets included in such Trust, paying
administrative expenses, or accomplishing
such other purpose as may be described in the
Prospectus Supplement. The Trust may include
a guaranteed investment contract or
reinvestment agreement pursuant to which
funds held in one or more accounts will be
invested at a specified rate.
If any Class of Securities has a floating
interest rate, or if any of the Trust Assets
has a floating interest rate, the Trust may
include an interest rate swap contract, an
interest rate cap agreement or similar hedge
contract providing limited protection against
interest rate risks. If provided in the
related Prospectus Supplement, interest
and/or principal on one or more Classes of
the Securities of a Series may be paid to
Holders thereof in a currency other than U.S.
dollars. If so provided, the Trust may, in
connection therewith, enter into one or more
currency rate swaps to provide limited
protection against foreign currency rate
fluctuation risks. One or more Classes of
Securities also may be issued in conjunction
with a put or call feature entitling (in the
case of a put) or obligating (in the case
of a call) the applicable Securityholders
to sell some or all of its Securites to the
party named in the applicable Prospectus
Supplement on the date or dates set forth
therein. Any such arrangements must
be acceptable to each nationally recognized
rating agency that provides a rating for the
related Series of Securities (the "Rating
Agency").
Monthly Advances.................. If so specified in the related Prospectus
Supplement, the Master Servicer will be
required under each Agreement to remit to the
Trustee no later than the day of each month
which is at least three business days prior
to the Remittance Date and is in no case
earlier than the seventh business day of such
month (the "Determination Date") the amount
(a "Monthly Advance"), if any, by which (a)
the sum of (x) 30 days' interest at the
weighted average Adjusted Loan Remittance
Rate (as defined herein under "Description of
the Securities-- Monthly Advances and
Compensating Interest") on the then
outstanding principal balance of the related
Series of Certificates and/or Notes and (y)
the amount, if any, required to be deposited
into the related Reserve Account (as
specified in the related Prospectus
Supplement) for the related Remittance Date
exceeds (b) the amount received by the Master
Servicer in respect of interest on the Loans
as of the related Record Date (less certain
amounts not required to be deposited into the
related Trust). Such advances by the Master
Servicer are reimbursable in the first
instance from late collections of interest,
including amounts received in connection with
the liquidation of defaulted Loans
("Liquidation Proceeds"), amounts paid by any
insurer pursuant to any insurance policy
covering a Loan, Mortgaged Property or REO
Property ("Insurance Proceeds"), and proceeds
received by the Master Servicer in connection
with condemnation, eminent domain or a
release of lien ("Released Mortgaged Property
Proceeds") collected with respect to the
related Loans as to which the advances were
made, and certain other amount that would
otherwise be distributed on the Securities.
The Master Servicer will not be required to
make any Monthly Advances which it
determines, in good faith, would be
nonrecoverable from amounts received in
respect of the Loans. See "Description of the
Securities- -Monthly Advances and
Compensating Interest."
Compensating
Interest.......................... If so specified in the related Prospectus
Supplement, with respect to each Loan as to
which the Master Servicer receives a
principal payment in full in advance of the
final scheduled due date (a "Principal
Prepayment") or receives a principal payment
that exceeds the scheduled payment by a
specified multiple, but which was not
intended by the Mortgagor to satisfy the Loan
in full or to cure a delinquency (a
"Curtailment"), the Master Servicer will be
required to remit to the Trustee, from
amounts otherwise payable to the Master
Servicer as servicing compensation, an amount
("Compensating Interest") equal to any excess
of (a) 30 days' interest on the principal
balance of each such Loan as of the beginning
of the related Due Period at the applicable
weighted average Adjusted Loan Remittance
Rate over (b) the amount of interest actually
received on the related Loan during such Due
Period (less certain amounts not required to
be deposited into the related Trust).
Optional
Termination....................... The Master Servicer, certain insurers, the
holders of certain Classes of Certificates
or Notes, or certain other entities
specified in the related Prospectus
Supplement may have the option to effect
early retirement of a Series of Securities
through the purchase of the related Trust
Assets and other assets in the related Trust
under the circumstances and in the manner
described in "The Agreement--Termination;
Purchase of Loans."
Mandatory
Termination....................... The Trustee, the Master Servicer or certain
other entities specified in the related
Prospectus Supplement may be required to
effect early retirement of a Series of
Securities under the circumstances and in the
manner specified in the related Prospectus
Supplement and herein under "The Agreement--
Termination; Purchase of Loans."
Trustee........................... The trustee or trustees under any Agreement
relating to a Series of Securities (each, a
"Trustee") will be specified in the related
Prospectus Supplement. Additionally, any
Co-Trustees, Custodians or Co-Custodians will
be set forth in the related Prospectus
Supplement.
Federal
Income Tax
Consequences...................... The federal income tax consequences of the
purchase, ownership and disposition of the
Securities of each series will depend on
whether an election is made to treat the
corresponding Trust (or certain assets of the
Trust) as a "real estate mortgage investment
conduit" ("REMIC") under the Internal Revenue
Code of 1986, as amended (the "Code"), and,
if such election is not made, whether the
Trust is structured and intended to be
treated as a grantor trust, a partnership or
otherwise.
REMIC. If an election is to be made to treat
the Trust (or certain assets of the Trust)
for a Series of Securities as a REMIC for
federal income tax purposes, the related
Prospectus Supplement will specify which
Class or Classes thereof will be designated
as regular interests in the REMIC ("REMIC
Regular Certificates") and which class of
Certificates will be designated as the
residual interest in the REMIC ("REMIC
Residual Certificates"). To the extent
provided herein and in the related Prospectus
Supplement, in the opinion of Stroock &
Stroock & Lavan LLP, special federal tax
counsel ("Federal Tax Counsel"), Certificates
representing an interest in the REMIC
generally will be considered "real estate
assets" for purposes of Section 856(c)(5)(A)
of the Code and assets described in Section
7701(a)(19)(C) of the Code.
In the opinion of Federal Tax Counsel, for
federal income tax purposes, REMIC Regular
Certificates generally will be treated as
debt obligations of the Trust with payment
terms equivalent to the terms of such
Certificates. Holders of REMIC Regular
Certificates will be required to report
income with respect to such Certificates
under an accrual method, regardless of their
normal tax accounting method. Original issue
discount, if any, on REMIC Regular
Certificates will be includible in the income
of the Holders thereof as it accrues, in
advance of receipt of the cash attributable
thereto, which rate of accrual will be
determined based on a reasonable assumed
prepayment rate. The REMIC Residual
Certificates generally will not be treated as
evidences of indebtedness for federal income
tax purposes, but instead, as representing
rights to the taxable income or net loss of
the REMIC.
Each holder of a REMIC Residual Certificate
will be required to take into account
separately its pro rata portion of the
REMIC's taxable income or loss. Certain
income of a REMIC (referred to as "excess
inclusions") generally may not be offset by
such a holder's net operating loss carryovers
or other deduc tions, and in the case of a
tax-exempt holder of a REMIC Residual
Certificate will be treated as "unrelated
business taxable income." In certain
situations, particularly in the early years
of a REMIC, holders of a REMIC Residual
Certificate may have taxable income, and
possibly tax liabilities with respect to such
income, in excess of cash distributed to
them. "DISQUALIFIED ORGANIZATIONS," AS
DEFINED IN "FEDERAL INCOME TAX CONSEQUENCES--
REMIC RESIDUAL CERTIFICATES--TAX ON
DISPOSITION OF REMIC RESIDUAL CERTIFICATES;
RESTRICTION ON TRANSFER; HOLDING BY
PASS-THROUGH ENTITIES," ARE PROHIBITED FROM
ACQUIRING OR HOLDING ANY BENEFICIAL INTEREST
IN THE REMIC RESIDUAL CERTIFICATES.
GRANTOR TRUST. If no election is to be made
to treat the Trust for a series of
Certificates ("Non-REMIC Certificates") as a
REMIC, the Trust may be classified as a
grantor trust for federal income tax purposes
and not as an association taxable as a
corporation or a taxable mortgage pool. In
the opinion of Federal Tax Counsel, holders
of Non-REMIC Certificates will be treated for
such purposes, subject to the possible
application of the stripped bond rules, as
owners of undivided interests in the related
Trust Assets generally will be required to
report as income their pro rata share of the
entire gross income (including amounts paid
as reasonable servicing compensation) from
the Trust Assets and will be entitled,
subject to certain limitations, to deduct
their pro rata share of expenses of the
Trust.
To the extent provided in the related
Prospectus Supplement, Non-REMIC Certificates
may represent "real estate assets" for
purposes of Section 856(c)(5)(A) of the Code
and "Loans . . . principally secured by an
interest in real property" within the meaning
of Section 7701(a)(19)(C)(v) of the Code.
PARTNERSHIP. If no election is to be made to
treat the Trust for a Series as a REMIC and
it is so specified in the related Prospectus
Supplement, the Trust will be treated as a
partnership for federal income tax purposes,
and Federal Tax Counsel will deliver its
opinion generally to the effect that the
Trust will not be an association (or publicly
traded partnership) taxable as a corporation,
or a taxable mortgage pool, for federal
income tax purposes. Each Noteholder, by the
acceptance of a Note of such series, will
agree to treat such Note as indebtedness, and
each Certificateholder, by the acceptance of
a Certificate of such series, will agree to
treat the related Trust as a partnership in
which such Certificateholder is a partner for
federal income and state tax purposes.
Investors are advised to consult their tax
advisors and to review "Federal Income Tax
Consequences" herein and, if applicable, in
the related Prospectus Supplement.
ERISA
Considerations.................... Fiduciaries of employee benefit plans or
other retirement plans or arrangements,
including individual retirement accounts,
certain Keogh plans, and collective
investment funds, separate accounts and
insurance company general accounts in which
such plans, accounts or arrangements are
invested, that are subject to the Employee
Retirement Income Security Act of 1974, as
amended ("ERISA"), or the Code should
carefully review with their legal advisors
whether an investment in Securities will
cause the assets of the related Trust to be
considered plan assets under the Department
of Labor ("DOL") regulations set forth in 29
C.F.R. Section 2510.3-101 (the "Plan Asset
Regulations"), thereby subjecting the Trustee
and the Master Servicer to the fiduciary
investment standards of ERISA, and whether
the purchase, holding or transfer of
Securities gives rise to a transaction that
is prohibited under ERISA or subject to the
excise tax provisions of Section 4975 of the
Code, unless a DOL administrative exemption
applies. See "ERISA Considerations."
Legal
Investment........................ Each Prospectus Supplement will describe the
extent, if any, to which the Classes of
Securities offered thereby will constitute
"mortgage-related securities" for purposes of
the Secondary Mortgage Market Enhancement Act
of 1984 ("SMMEA") and whether they will be
legal investments for certain types of
institutional investors under SMMEA. See
"Legal Investment" herein.
Registration of
Securities........................ Securities may be represented by global
certificates and/or notes registered in the
name of Cede, as nominee of DTC, or another
nominee. In such case, Securityholders will
not be entitled to receive definitive
certificates and/or notes representing such
Holders' interests, except in certain
circumstances described in the related
Prospectus Supplement. See "Description of
the Securities--Book-Entry Registration"
herein.
<PAGE>
RISK FACTORS
LIMITED LIQUIDITY
There can be no assurance that a secondary market for the Securities
will develop or, if a secondary market does develop, that it will provide
Holders of the Securities with liquidity of investment or that it will continue
for the lives of the Securities. In addition, transfers of certain Classes of
Securities may be restricted as set forth in the related Prospectus Supplement.
BOOK-ENTRY REGISTRATION
Issuance of the Certificates and/or Notes in book-entry form may
reduce the liquidity of such Securities in the secondary trading market since
investors may be unwilling to purchase Securities for which they cannot obtain
physical certificates or notes.
Since transactions in Certificates and Notes will, in most cases, be
able to be effected only through DTC, Direct or Indirect Participants and
certain banks, the ability of a Securityholder to pledge a Certificate or Note
to persons or entities that do not participate in the DTC system, or otherwise
to take actions in respect of such Securities may be limited due to lack of a
physical certificate representing such Securities.
Securityholders may experience some delay in their receipt of
distributions of interest on and principal of the Securities since distributions
may be required to be forwarded by the Trustee to DTC and, in such a case, DTC
will be required to credit such distributions to the accounts of its
Participants which thereafter will be required to credit them to the accounts of
the applicable Class of Securityholders either directly or indirectly through
Indirect Participants or such other entities as described in the related
Prospectus Supplement. See "Description of the Securities--Book-Entry
Registration."
NATURE OF SECURITY
Certain of the Loans will be loans secured by junior liens subordinate
to the rights of the mortgagee under each related senior mortgage. As a result,
the proceeds from any liquidation, insurance or condemnation proceedings will be
available to satisfy the principal balance of a junior mortgage loan only to the
extent that the claims, if any, of each such senior mortgagee are satisfied in
full, including any related foreclosure costs. In addition, a mortgagee may not
foreclose on the mortgaged property unless it forecloses subject to any related
senior mortgage or mortgages, in which case it must either pay the entire amount
of each senior mortgage to the applicable mortgagee at or prior to the
foreclosure sale or undertake the obligation to make payments on each senior
mortgage in the event of default thereunder. In servicing mortgage loans in
their portfolios, it has been the Originators' practice to satisfy each such
senior mortgage at or prior to the foreclosure sale only to the extent that they
determine any amounts so paid will be recoverable from future payments and
collections on the mortgage loans or otherwise. The Trusts will not have any
source of funds to satisfy any such senior mortgage or make payments due to any
senior mortgagee. See "Certain Legal Aspects of the
Loans--Foreclosure/Repossession."
An overall decline in the market value of residential or commercial
real estate, the general condition of a Mortgaged Property, or other factors,
could adversely affect the values of the Mortgaged Properties such that the
outstanding balances of the Loans which are junior mortgage loans, together with
any senior liens on the Mortgaged Properties, equal or exceed the value of the
Mortgaged Properties. Such a decline could extinguish the interest of the
related Trust in the Mortgaged Property before having any effect on the interest
of the related senior mortgagee. The Representative will not be able to quantify
the impact of any property value declines on the Loans or predict whether, to
what extent or how long such declines may continue. In periods of such declines,
the actual rates of delinquencies, foreclosures and losses on the Loans could be
higher than those historically experienced in the mortgage lending industry in
general.
Certain of the Loans may constitute "Balloon Loans." Balloon Loans are
originated with a stated maturity of less than the period of time of the
corresponding amortization schedule. As a result, upon the maturity of a Balloon
Loan, the Mortgagor will be required to make a "balloon" payment which will be
significantly larger than such Mortgagor's previous monthly payments. The
ability of such a Mortgagor to repay a Balloon Loan at maturity frequently will
depend on such borrower's ability to refinance the Loan. The ability of a
Mortgagor to refinance such a Loan will be affected by a number of factors,
including the level of available mortgage rates at the time, the value of the
related Mortgaged Property and other collateral securing the Loan, the
Mortgagor's equity in the related Mortgaged Property, the financial condition of
the Mortgagor and the tax laws and general economic conditions at the time.
Although a low interest rate environment may facilitate the
refinancing of a balloon payment, the receipt and reinvestment by
Securityholders of the proceeds in such an environment may produce a lower
return than that previously received in respect of the related Loan. Conversely,
a high interest rate environment may make it more difficult for the Mortgagor to
accomplish a refinancing and may result in delinquencies or defaults. None of
the Representative, the Originators, the Master Servicer or the Trustee will be
obligated to provide funds to refinance any Loan.
General economic conditions have an impact on the ability of borrowers
to repay loans. Loss of earnings, illness and other similar factors may lead to
an increase in delinquencies and bankruptcy filings by borrowers. In the event
of bankruptcy of a Mortgagor, it is possible that a Trust could experience a
loss with respect to such Mortgagor's Loan. In conjunction with a Mortgagor's
bankruptcy, a bankruptcy court may suspend or reduce the payments of principal
and interest to be paid with respect to such Loan or permanently reduce the
principal balance of such Loan, thus either delaying or permanently limiting the
amount received by the Trust with respect to such Loan. Moreover, in the event a
bankruptcy court prevents the transfer of the related Mortgaged Property to a
Trust, any remaining balance on such Loan may not be recoverable.
Even assuming that the Mortgaged Properties and other collateral
securing a Loan provide adequate security for the Loans, substantial delays
could be encountered in connection with the liquidation of defaulted Loans and
corresponding delays in the receipt of related proceeds by the Securityholders
could occur. An action to foreclose on a Mortgaged Property securing a Loan is
regulated by state statutes and rules and is subject to many of the delays and
expenses of other lawsuits if defenses or counterclaims are interposed,
sometimes requiring several years to complete. Furthermore, in some states an
action to obtain a deficiency judgment is not permitted following a nonjudicial
sale of a Mortgaged Property. In the event of a default by a Mortgagor, these
restrictions, among other things, may impede the ability of the Master Servicer
to foreclose on or sell the Mortgaged Property or to obtain Liquidation Proceeds
(net of expenses) sufficient to repay all amounts due on the related Loan. The
Master Servicer will be entitled to deduct from Liquidation Proceeds all
expenses reasonably incurred in attempting to recover amounts due on the related
liquidated Loan and not yet repaid, including payments to prior lienholders,
legal fees and costs of legal action, real estate taxes, and maintenance and
preservation expenses. In the event that any Mortgaged Properties and other
collateral securing a Loan fail to provide adequate security for the Loans and
insufficient funds are available from applicable Credit Enhancement,
Securityholders could experience a loss on their investment.
Liquidation expenses with respect to defaulted loans do not vary
directly with the outstanding principal balance of the loan at the time of
default. Therefore, assuming that a servicer took the same steps in realizing
upon a defaulted loan having a small remaining principal balance as it would in
the case of a defaulted loan having a larger principal balance, the amount
realized after expenses of liquidation would be smaller as a percentage of the
outstanding principal balance of the smaller loan than would be the case with a
larger loan.
ENVIRONMENTAL CONSIDERATIONS
Under environmental legislation and case law applicable in various
states, including California, a secured party that takes a deed in lieu of
foreclosure, acquires a mortgaged property at a foreclosure sale or which, prior
to foreclosure, has been involved in decisions or actions which may lead to
contamination of a property, may be liable for the costs of cleaning up a
contaminated site. Although such costs could be substantial, it is unclear
whether they would be imposed on a holder of a mortgage note (such as a Trust)
which, under the terms of the Agreement, is not required to take an active role
in operating the Mortgaged Properties. See "Certain Legal Aspects of the Loans--
Environmental Considerations."
In each Agreement the Originators will represent and warrant that at
the time of origination of each Loan, the related commercial real property was
below regulatory agency action levels of contamination from toxic substances or
hazardous wastes and that as of the Cut-Off Date, the Originators have no
knowledge of any contamination from toxic substances or hazardous wastes on any
commercial real property, except for commercial real property subject to ongoing
environmental rehabilitation. The Servicer will agree that if it has reasonable
cause to believe a property may have contamination from toxic substances or
hazardous wastes (unless subject to ongoing environmental rehabilitation), it
will not foreclose upon the related Loan until after it obtains a Phase I
environmental report. See "The Agreements--Representations and Warranties"
herein.
Beginning in November 1995, the SBA approved a program that allows
lenders, subject to certain conditions, to take as collateral commercial real
property that is subject to ongoing environmental rehabilitation. These
conditions include the lender identifying a party that has accepted
responsibility for, and has commenced clean-up under, an environmental
rehabilitation program approved by the appropriate regulatory agency. The party
responsible for clean-up must execute an indemnity agreement approved by the
SBA, which agreement holds such party accountable for completing all required
remediation. The indemnity agreement inures to the benefit of subsequent holders
of the property. The lender must obtain adequate financial data on the
indemnitor indicating that the indemnitor will be able to complete the required
remediation.
PRE-FUNDING ACCOUNTS
If a Trust Fund includes a Pre-Funding Account and the principal
balance of additional Loans delivered to the Trust Fund during the Pre-Funding
Period is less than the original Pre-Funded Amount, the Holders of the
Securities of the related Series will receive a prepayment of principal as and
to the extent described in the related Prospectus Supplement. Any such principal
prepayment may adversely affect the yield to maturity of the applicable
Securities.
The ability of a Trust Fund to obtain subsequent Loans during the
related Pre-Funding Period will be dependent on the ability of the Originators
to originate or acquire Loans that satisfy the requirements for transfer to the
Trust Fund. The ability of the Originators to originate or acquire such Loans
will be affected by a variety of social and economic factors, including the
prevailing level of market interest rates, unemployment levels and consumer
perception of general economic conditions.
PREPAYMENT CONSIDERATIONS
The Loans may be prepaid in full or in part at any time. The rate of
prepayments of the Loans cannot be predicted and may be affected by a wide
variety of economic, social, and other factors, including prevailing interest
rates and the availability of alternative financing. Therefore, no assurance can
be given as to the level of prepayments that a Trust will experience.
THE STATUS OF THE LOANS IN THE EVENT OF BANKRUPTCY OF AN ORIGINATOR
The Originators believe that upon the sale of a Series of Certificates
and/or Notes to an independent third party for fair value and without recourse,
such sale will constitute an absolute and unconditional sale of such
Certificates and/or Notes and the interests in the Loans evidenced thereby.
However, in the event of the bankruptcy of an Originator at a time when it or
any affiliate thereof holds any interest in the Loans, a trustee in bankruptcy
or other creditor could attempt to recharacterize the sale of the Loans as a
borrowing by such Originator or any such affiliate with the result that
Securities are deemed to be creditors of such Originator or such affiliate,
secured by a pledge of the Loans. If such an attempt were successful, a trustee
in bankruptcy could elect to accelerate payment of the Securities and liquidate
the Loans with the Securityholders entitled to the then outstanding principal
amount thereof together with accrued interest. Thus, the Holders of Securities
could lose the right to future payments of interest, might suffer reinvestment
loss in a lower interest rate environment and, if the Loans are sold for a price
less than the then outstanding principal balances of all classes of Securities,
certain Certificateholders and/or Noteholders might suffer a loss of principal.
In connection with the issuance of each Series of Securities, the
Trustee will receive an opinion of Stroock & Stroock & Lavan LLP, special
counsel, to the effect that if it were litigated, a court ultimately would
uphold the Originators' intention that the transfer of the Loans in each Loan to
a Trust constitutes a sale under applicable law. Therefore, the Loans would not
be property of the Originators in the event of the appointment of a receiver or
conservator for the Originators. Such opinion is limited to matters of New York
and federal law and the conclusions thereof are based upon a reasoned analysis
of the transaction and legal principles derived from existing case law believed
to be applicable by analogy. It should be recognized, however, that a court is
not bound by such legal opinion.
Prepayments may result from voluntary early payments by borrowers
(including payments in connection with refinancings of the related senior
mortgage loan or loans), sales of businesses financed by the Loans, sales of
Mortgaged Properties subject to "due-on-sale" provisions and liquidations due to
default, as well as the receipt of proceeds from insurance policies. In
addition, repurchases or purchases from a Trust of Loans required to be made by
the Master Servicer under the Agreement will have the same effect on the
Securityholders as a prepayment of the related Loans. See "Yield, Maturity and
Prepayment Considerations" herein. Also, if a Pre-Funding Account is established
and during the Funding Period the entire Pre-Funded Amount is not used to
purchase subsequent Loans, the Certificates and/or Notes will be prepaid in part
from and to the extent of such remaining amounts.
Collections on the Loans may vary due to the level and frequency of
delinquent payments and of prepayments. Collections on the Loans may also vary
due to seasonal business patterns and payment habits of borrowers.
The Loans may be "simple interest" or "date-of-payment loans". If a
payment is received on a Loan later than scheduled, a smaller portion of such
payment will be applied to principal and a greater portion will be applied to
interest than would have been the case had the payment been received on its
scheduled due date, resulting in such Loan having a longer average life than
would have been the case had the payment been made as scheduled. Conversely, if
a payment on a Loan is received earlier than scheduled, more of such payment
will be applied to principal and less to interest than would have been the case
had the payment been received on its scheduled due date, resulting in such Loan
having a shorter average life than would have been the case had the payment been
made as scheduled. However, this effect is mitigated because the monthly payment
amount is recalculated periodically to reflect changes in the interest rate, the
then-current principal balance and the then-remaining term to maturity.
SECURITY RATING
If as set forth in the related Prospectus Supplement, the rating of
one or more classes of Securities may depend, to a large extent, on the
creditworthiness of a third party provider of credit enhancement. In such event,
any reduction in the rating assigned to the claims-paying ability of such
provider below the rating initially given to such Class of Securities would
likely result in a reduction in the rating of such Series of Securities. See
"Rating."
UNAUDITED STATEMENTS
On each Remittance Date, the Trustee will mail to each Securityholder
a statement setting forth, among other things, certain information as to the
distribution being made on such Remittance Date, the fees to be paid to the
Master Servicer and Trustee and the loss and delinquency status of the Loans.
Although the information contained in such statements will be prepared by the
Master Servicer, neither such information nor any other financial information
furnished to Securityholders will be examined and reported upon, and an opinion
will not be expressed by, an independent public accountant. See "Description of
the Agreement and the Securities -- Payments on the Loans; Distribution on the
Securities" herein.
<PAGE>
THE TRUSTS
A Trust for any Series of Securities will include the Trust Assets
consisting of a Pool* comprised of (i) SBA Section 7(a) Loans, (ii) Section 7(a)
Companion Loans, (iii) SBA 504 Loans, and (iv) Non-SBA Loans, in each case, as
specified in the related Prospectus Supplement, together with payments in
respect of such Trust Assets and certain other accounts, obligations or
agreements, in each case as specified in the related Prospectus Supplement.
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* Whenever the terms "Pool," "Certificates," "Notes" and "Securities"
are used in this Prospectus, such terms will be deemed to apply,
unless the context indicates otherwise, to one specific Pool, the
Certificates representing certain undivided fractional interests, as
described below, in a single Trust consisting primarily of the Loans
in such Pool, and the Notes shall refer to debt obligations of such
Trust secured by the related Pool of SBA Loans. Similarly, the term
"Pass-Through Rate" will refer to the Pass-Through Rate borne by the
Certificates of one specific Series, the term "Interest Rate" will
refer to the Interest Rate borne by the Notes of one specific Series
and the term "Trust" will refer to one specific Trust.
The Notes of each Series will be secured by the pledge of the assets
of the related Trust, and the Certificates of each Series will represent
interests in the assets of the related Trust. The Securities will be entitled to
payment from the assets of the related Trust and, to the extent specified in a
Prospectus Supplement, payments in respect of the assets of other trusts
established by the Representative, the Originators or any of their affiliates.
If specified in the related Prospectus Supplement, certain Securities will
evidence the entire fractional undivided ownership interest in a Trust which
will contain a beneficial ownership interest in another Trust which will contain
all or some of the Trust Assets.
Certain of the Trust Assets may have been originated by the
Originators. Other Trust Assets may have been acquired by the Representative, an
Originator or an affiliate thereof in the open market or in privately negotiated
transactions, including transactions with entities affiliated with the
Representative.
The following is a brief description of the Trust Assets expected to
be included in the Trusts. If specific information respecting the Trust Assets
is not known at the time the related Series of Securities initially is offered,
more general information of the nature described below will be provided in the
Prospectus Supplement, and specific information will be set forth in a report on
Form 8-K to be filed with the Commission within fifteen days after the initial
issuance of such Securities (the "Detailed Description"). A copy of the
Agreement with respect to each Series of Securities will be attached to the Form
8-K and will be available for inspection at the corporate trust office of the
Trustee specified in the related Prospectus Supplement. A schedule of the Trust
Assets relating to such Series (the "Trust Asset Schedule") will be attached to
the Agreement delivered to the Trustee upon delivery of the Securities.
GENERAL
The real property which secures repayment of the Loans (the "Mortgaged
Properties") may be located in any one of the fifty states, the District of
Columbia, the Commonwealth of Puerto Rico or any other commonwealth, territory
or possession of the United States. The Loans in a Pool will provide for
payments to be made monthly ("monthly pay"), bi-weekly or at such other times as
may be set forth in a Prospectus Supplement. The payment terms of the Loans to
be included in a Trust will be described in the related Prospectus Supplement
and may include any of the following features or combinations thereof or other
features described in the related Prospectus Supplement:
(a) Interest may be payable at a Fixed Rate, or an Adjustable
Rate (i.e., a rate that is adjustable from time to time in relation to
an index, a rate that is fixed for a period of time or under certain
circumstances and is followed by an adjustable rate, a rate that
otherwise varies from time to time, or a rate that is convertible from
an adjustable rate to a fixed rate). The specified rate of interest on
a Loan is its "Mortgage Interest Rate". Changes to an Adjustable Rate
may be subject to periodic limitations, maximum rates, minimum rates
or a combination of such limitations. Accrued interest may be deferred
and added to the principal of a Loan for such periods and under such
circumstances as may be specified in the related Prospectus
Supplement. Loans may provide for the payment of interest at a rate
lower than the Mortgage Interest Rate for a period of time or for the
life of the Loan, and the amount of any difference may be contributed
from funds supplied by the seller of the Mortgaged Property securing
the related Loan or another source or may be treated as accrued
interest added to the principal of the Loan.
(b) Principal may be payable on a level basis to fully amortize
the Loan over its term, may be calculated on the basis of an assumed
amortization schedule that is significantly longer than the original
term to maturity or on an interest rate that is different from the
Mortgage Interest Rate, or may not be amortized during all or a
portion of the original term. Payment of all or a substantial portion
of the principal may be due on maturity ("balloon" payments).
Principal may include interest that has been deferred and added to the
principal balance of the Loan.
(c) Monthly payments of principal and interest may be fixed for
the life of the Loan, may increase over a specified period of time
("graduated payments") or may change from period to period. Loans may
include limits on periodic increases or decreases in the amount of
monthly payments and may include maximum or minimum amounts of monthly
payments. Loans may require the monthly payments of principal and
interest to increase for a specified period, provide for deferred
payment of some or all of the payments due during a specified period,
which may be recouped as deferred interest, or otherwise.
(d) Prepayments of principal may be subject to a prepayment fee,
which may be fixed for the life of the Loan or may decline over time,
and may be prohibited for the life of the Loan or for certain periods
("lockout periods"). Certain Loans may permit prepayments after
expiration of the applicable lockout period and may require the
payment of a prepayment fee in connection with any such subsequent
prepayment. Other Loans may permit prepayments without payment of a
fee unless the prepayment occurs during specified time periods. The
Loans may include due-on-sale clauses which permit the mortgagee to
demand payment of the entire Loan in connection with the sale or
certain transfers of the related Mortgaged Property. Other Loans may
be assumable by persons meeting the then applicable underwriting
standards of the Originator.
The Prospectus Supplement for each Series of Securities will contain
information with respect to all the Loans expected to be included in the related
Pools as of the related closing date, including (i) the expected aggregate
outstanding principal balance and the expected average outstanding principal
balance of the Loans as of the date set forth in the Prospectus Supplement; (ii)
the largest expected principal balance and the smallest expected, principal
balance of any of the Loans; (iii) the types of Mortgaged Properties and/or
other assets securing the Loans (iv) the original terms to maturity of the
Loans, (v) the expected weighted average term to maturity of the Loans as of the
date set forth in the Prospectus Supplement and the expected range of the terms
to maturity; (vi) the earliest origination date and latest maturity date of any
of the Loans; (vii) the expected Mortgage Interest Rate and ranges of Mortgage
Interest Rates borne by the Loans; (viii) in the case of Loans having Adjustable
Rates, the expected weighted average of the Adjustable Rates, if any; (ix) the
amount of any Guaranty Insurance Policy, Mortgage Pool Insurance Policy, Special
Hazard Insurance Policy or Bankruptcy Bond to be maintained with respect to such
Pool; (x) the amount, if any, and terms of any other credit enhancement or other
derivative instruments to be provided with respect to all or any Loans or the
Pool; and (xi) the expected geographic location of the Mortgaged Properties. If
specific information respecting the Loans is not known to the Representative at
the time the related Securities are initially offered, more general information
of the nature described above will be provided in the Prospectus Supplement and
specific information will be set forth in the Detailed Description.
Unless otherwise provided in the related Prospectus Supplement, the
only obligations of the Representative or the Originators with respect to a
Series of Securities will be to provide (or, where the Representative or an
Originator acquired a Loan from another originator, obtain from such originator)
certain representations and warranties concerning the Loans and to assign to the
Trustee for such Series of Securities the Representative's or Originator's
rights with respect to such representations and warranties. See "The
Agreements--Sale of Loans." The obligations of the Master Servicer with respect
to the Loans will consist principally of its contractual servicing obligations
under the related Agreement and its obligation to make certain cash advances in
the event of delinquencies in payments on or with respect to the Loans in the
amounts described herein under "Description of the Securities -- Monthly
Advances and Compensating Interest." The obligations of a Master Servicer to
make advances may be subject to limitations, to the extent provided herein and
in the related Prospectus Supplement.
If provided in the related Prospectus Supplement, the original
principal amount of a Series of Securities may exceed the principal balance of
the Trust Assets initially being delivered to the Trustee. Cash in an amount
equal to such difference (the "Pre-Funded Amount") will be deposited into a
separate trust account (the "Pre- Funding Account") maintained with the Trustee.
During the period set forth in the related Prospectus Supplement (the "Funding
Period"), amounts on deposit in the Pre-Funding Account may be used to purchase
additional Trust Assets for the related Trust subject to the satisfaction of
certain conditions specified under the Agreements. Any amounts remaining in the
Pre-Funding Account at the end of such period will be distributed as a principal
prepayment to the holders of the related Series of Securities at the time and in
the manner set forth in the related Prospectus Supplement.
SBA SECTION 7(A) LOANS
The SBA Section 7(a) Loans will consist of the Unguaranteed Interests
in loans originated under Section 7(a) (the "Section 7(a) Program") of the Small
Business Act of 1953 (the "SBA Act"), which Act created the Small Business
Administration (the "SBA"). The Section 7(a) Program was intended to encourage
lenders to provide loans to qualifying small businesses. Loans made under the
Section 7(a) Program can be used to construct, purchase, expand or convert
facilities or to purchase building equipment, leaseholds or materials. Money
lent under the Section 7(a) Program also can, under certain circumstances, be
used for working capital.
The SBA Section 7(a) Loans are partially guaranteed by the SBA
pursuant to a Small Business Administration Loan Guaranty Agreement (Deferred
Participation) (SBA Form 750), dated August 13, 1980 by and between The Money
Store Investment Corporation and the SBA (the "Loan Guaranty Agreement") and
pertinent SBA regulations found at 13 C.F.R. part 120. As to any SBA Section
7(a) Loan, the right to receive the guaranteed portion of the principal balance
thereof together with interest thereon at a per annum rate in effect from time
to time plus a fee paid to the SBA's fiscal and transfer agent is referred to
herein as the "Guaranteed Interest". The Guaranteed Interest varies from SBA
Section 7(a) Loan to SBA Section 7(a) Loan, will not be included in the related
Trust Fund and Securityholders will have no right or interest therein. As to any
SBA Section 7(a) Loan, the "Unguaranteed Interest" will equal all payments and
other recoveries on such SBA Section 7(a) Loan not constituting the Guaranteed
Interest therein and certain other amounts to be described in a Prospectus
Supplement that will not be transferred to the related Trust.
The SBA administers three levels of lender participation in the
Section 7(a) Program. Under the first level, known as the "Guaranteed
Participant Program", the lender gathers and processes data from applicants and
forwards it, along with a request for the SBA's guaranty, to a local SBA office.
The SBA then completes an independent analysis and decides whether to guaranty
the loan. SBA turnaround time on such applications varies greatly, depending on
its backlog of loan applications.
Under the second level of lender participation, known as the
"Certified Lender Program," the lender (the "Certified Lender") gathers and
processes data from applicants and makes a request to the SBA, as in the
Guaranteed Participant Program procedure. The SBA then performs an expedited
review of the lender's credit analysis, which generally is completed within
three working days. The SBA requires that lenders originate loans meeting
certain portfolio and volume criteria before authorizing them to participate in
the Certified Lender Program.
Under the third level of lender participation, known as the "Preferred
Lender Program", the lender (the "Preferred Lender") has the authority to
approve a loan and obligate the SBA to guarantee the loan without submitting an
application to the SBA for credit review. The lender is required to notify the
SBA of the approved loan and submit certain documents. The standards established
for participants in the Preferred Lender Program are more stringent than those
for participants in the Certified Lender Program and involve meeting additional
require ments in terms of origination, servicing and liquidation capabilities as
well as loan volumes and portfolio quality.
THE SECTION 7(A) COMPANION LOANS
For applications submitted between January 1, 1995 and October 12,
1995, the maximum loan size for most loans originated under the Section 7(a)
Program was reduced administratively to $500,000. To assist qualified borrowers
in obtaining more financing when needed, the Originators introduced a program
(the "Section 7(a) Companion Program") pursuant to which an Originator
originated a loan (the "Section 7(a) Companion Loan") to the related borrower in
situations in which the total amount financed would otherwise have exceeded the
$500,000 limit. The Originators may originate Section 7(a) Companion Loans in
the future where a qualified borrower requests financing in an amount that
otherwise would exceed the limits of the Section 7(a) Program. Although Section
7(a) Companion Loans are not guaranteed by the SBA, they are secured by a lien
on the related primary collateral, which lien is prior to the lien of the
related SBA Section 7(a) Loan.
Section 7(a) Companion Loans may be utilized by a borrower for all
eligible SBA Section 7(a) Loan purposes. Section 7(a) Companion Loans are
originated only in conjunction with a Seller obtaining an SBA guarantee of the
accompanying SBA Section 7(a) Loan under the Certified Lender Program (the SBA
currently prohibits Section 7(a) Companion Loans in connection with the
Preferred Lender Program). Section 7(a) Companion Loans bear interest and have
terms to maturity as described above under "--SBA 7(a) Loan Parameters."
SBA 504 LOANS
The SBA 504 Loans will consist of loans originated by the Originators
under the SBA 504 Loan Program (the "SBA 504 Loan Program"). The SBA 504 Loan
Program was established under the SBA Act to encourage lenders to provide fixed
asset financing to qualifying small businesses. SBA 504 Loans may be used for
plant acquisition, construction, renovation, expansion, land and site
improvements, acquisition and installation of machinery and equipment as well as
certain closing costs and professional fees and the interest on interim
financing. The Originators provide approximately 50% of project costs in a
conventional loan agreement, with borrowers providing a minimum 10% equity
contribution. The SBA provides the remainder of the financing. Each loan by the
Originators must receive prior approval by the SBA.
The funds used by the SBA to originate its portion of a project
generated pursuant to the SBA 504 Loan Program are generated by issuing
SBA-guaranteed debentures on behalf of a certified development company (a
"CDC"). A CDC is an organization sponsored by private interests or by state or
local governments. The debentures are pooled monthly and sold through a
certificate mechanism to the public market. The loans originated by the
Originators under the SBA 504 Loan Program are not guaranteed by the SBA.
NON-SBA LOANS
Certain of the Non-SBA Loans will be loans made in connection with the
Conventional Commercial Loan Program (the "Conventional Commercial Loan
Program") of the Representative and the Originators. Created November 1, 1996,
the Conventional Commercial Loan Program is designed to assist qualified
borrowers in obtaining financing ("Conventional Commercial Loans"). Conventional
Commercial Loans may currently be used for hotel/motel acquisition,
construction, renovation, conversion, refinance, expansion, land and site
improvements, acquisition and installation of furniture, fixtures and equipment
as well as certain closing costs and professional fees, working capital and the
interest on interim financing. The Originators provide up to approximately 75%
of project costs in a conventional loan agreement, with borrowers providing a
minimum 25% equity contribution.
Origination Mechanisms. The Originators primarily generate
Conventional Commercial Loans through two mechanisms. The first, known as the
Franchise Finance Division, utilizes a national referral network of trade
associations, hotel/motel franchisors and independent or affiliated commercial
loan brokers. Franchise Account Managers perform essentially the same tasks as
local sales representatives and are compensated primarily through commissions.
The second origination arm, known as the HFS Group, generates business
primarily from its contractual relationship as a preferred vendor with HFS,
Incorporated ("HFS"). Commercial Loan Representatives of the HFS Group work with
the sales and transfer/renewal departments for each of the franchise concepts to
locate customers. All customer contact is handled by telephone through a
national sales center in Sacramento, California.
Both the Franchise Finance Division and the HFS Group also receive
referrals from the Originators' national network of sales offices serving local
markets.
Collateral for Conventional Commercial Loans. Conventional Commercial
Loans are first-lien mortgages for the purchase, development or refinance of
franchise hotel/motel properties. The national franchisors that represent the
focus for this program include the HFS franchise concepts itemized above and
other major hotel/motel franchisors, including Choice Hotels International and
Best Western International.
Each Conventional Commercial Loan originated by an Originator is
secured by a first lien on the related primary collateral. Additional liens on
secondary collateral may also be taken. The borrower is required to fund at
least 25% of the total allowable project costs; however, the Originator may
require a higher equity percentage for certain larger projects and projects with
special credit risks. The Loan-to-Value Ratio for Conventional Commercial Loans
may not exceed 75% of the lower of cost or appraised value. The Originators also
generally require a minimum debt service coverage ratio of 1.25:1 for the most
recent two full years, interim and projected periods.
Conventional Commercial Loans that are originated for construction
purposes generally possess a maximum Loan-to-Value Ratio of 75% of the lower of
the appraised value or the total of the construction budget, interim interest,
contingency and loan point and fees.
Competition. The Originators' main competitors vary by region and by
market. Its primary competitors are banks and finance companies such as PMC
Capital Inc., Allied Capital Commercial Corp. and Hotel Capital Corp. of
America. The Originators do not believe that any one competitor, or a small
group of competitors, is dominant in the industry.
Underwriting Criteria for Conventional Commercial Loans. The
Originators seek to control the risk of default of the actual credit through
their underwriting standards. The underwriting for the Originators' Conventional
Commercial Loan Program emphasizes historical operating performance and debt
service coverage to help determine the repayment ability of the borrower. It is
also expected by the Originators that qualifying owners generally have direct
industry experience. Lack of experience must be offset by significant training
provided by the franchisor, by an extended transition period during which the
seller of the business will remain on site or by contracting with a
professional, qualified management firm.
As with SBA Section 7(a) Loans, SBA 504 Loans and SBA Section 7(a)
Companion Loans, the Originators have established review procedures to help
ensure that all loans that they originate or acquire comply with the policy
defined for the Conventional Commercial Loan Program. Commercial loan officers
evaluate each applicant's financial statements, credit reports and other data to
determine if the credit and collateral satisfy the Originator's standards. These
standards include historic debt service coverage, reasonableness of projections
and strength of management. For each application, qualified personnel also
perform a site inspection to determine the appropriateness of the location for
the proposed use, observe the economic conditions of the local market and
inspect the property for obvious structural defects or environmental issues.
The Originators' loan officers assess the reasonableness of
projections based primarily upon (i) their experience with other similar loans
in the same industry and area, (ii) their general knowledge of the industry,
(iii) their general experience in assessing small business loans and (iv) the
business experience of the applicant. The qualification of an applicant to
prepare such projections is generally based upon the applicant's experience in
the industry and knowledge specific to the market in which the project is
proposed. Following credit review and approval but prior to loan funding, a
feasibility study and an appraisal for the proposed project are commissioned by
the commercial loan officer from an appraiser approved by Originator. For
construction loans, the feasibility study must be based on, at a minimum,
preliminary plans and specifications along with a cost breakdown prepared by a
qualified third party. The Originators consider this feasibility information to
be critical in assessing the viability of a proposed project in a specific
market area. A Phase I environmental site assessment report is also required on
each project to be financed.
The maximum loan amount for the Conventional Commercial Loan Program
is $3,000,000; the minimum loan is $250,000. A prepayment penalty is imposed on
loans that are prepaid within the first five years of the loan term. The
Originators require a first lien position on the fee interest in the subject
facility and all business assets financed with a Conventional Commercial Loan.
The personal guarantees of owners, principals and affiliate businesses will
generally be required. Non-recourse financing may be considered on a case-by
case basis as warranted by the overall creditworthiness of the applicant and the
viability of the proposed project.
All loan applications are submitted to a centralized loan underwriting
and processing center in Sacramento, California. The loan application package is
screened initially for completeness by a credit manager or senior loan officer,
who then assigns the package to a commercial loan officer. The commercial loan
officer is responsible for analyzing the creditworthiness of the applicant and
preparing a loan memorandum, which includes a credit analysis (including a
description of the collateral), states the purpose of the loan and the strengths
and weaknesses of the credit. In addition, for each proposed loan, the
commercial loan officer performs a collateral analysis, financial analysis
(including historical debt service coverage) and business and personal credit
checks.
If the commercial loan officer recommends the loan for approval, the
loan memorandum and supporting documents are submitted to the senior loan
officer, credit manager, or a senior credit officer for review based on the
various levels of credit authority. All Conventional Commercial Loans above
$1,500,000 are reviewed and approved by a committee of not less than three
members of an Originator's senior client administration group, including at
least one senior credit officer.
The Originators also may originate Non-SBA Loans with characteristics
substantially the same as SBA Section 7(a) Loans or SBA 504 Loans.
USE OF PROCEEDS
The Representative and the Originators may use the net proceeds to be
received from the sale of the Securities of each Series for general corporate
purposes, including repayment of debt, including, but not limited to, warehouse
facilities, and the origination and acquisition of Loans and other Trust Assets.
The Representative expects Securities to be sold in Series from time to time.
THE REPRESENTATIVE AND THE ORIGINATORS
The Loans will have been originated or acquired by the Originators.
The Money Store or one of its affiliates will act as the Master Servicer of the
Loans and other Trust Assets. Except for certain representations and warranties
relating to the Loans and other Trust Assets and certain other matters, the
obligations of The Money Store and the Originators with respect to the Loans and
other Trust Assets will be limited to its contractual servicing obligations.
The Money Store is a New Jersey corporation and is headquartered in
Sacramento, California and Union, New Jersey.
The Money Store is a financial services company engaged, through its
subsidiaries (including the Originators), in the business of originating,
purchasing, selling and servicing consumer and commercial loans of specified
types and offering related services. Loans originated by The Money Store and its
subsidiaries have consisted primarily of mortgage loans, Loans, student loans,
and automobile loans.
Since 1967, The Money Store and its subsidiaries have been active in
the development of the residential home equity lending industry in the United
States.
THE SBA LOAN LENDING PROGRAM
The following describes the procedures used by the Originators in
originating substantially all of the SBA Section 7(a) Loans to be transferred to
a Trust.
The Originators generate business principally through a national
network of sales offices serving local markets and a national products division
that markets nationally through a centralized sales operation. The national
network of sales offices is divided into sales territories, each serving a
specific geographic area. These offices are staffed by business development
officers ("BDOs"), with some offices in large metropolitan areas having several
BDOs and clerical support staff, all serving a local market. Each of the 11
sales territories is supervised by a regional sales manager.
BDOs locate customers primarily through a referral network of
commercial real estate brokers, business brokers, accountants, lawyers, chambers
of commerce, local business associations and other financial institutions. BDOs
work with the customer to match the correct loan product to their financing
needs. BDOs also screen applications for credit worthiness and eligibility for
the applicable SBA program and assemble the loan application for submission to
the underwriting department. BDOs are compensated primarily through commissions.
The national products division generates business primarily through a
national referral network of professional organizations, franchisors and
independent or affiliated commercial loan brokers. Commercial loan
representatives of the national products division perform essentially the same
tasks as a BDO, however, customer contact is handled by telephone through a
national sales center located in Sacramento, California.
SBA Section 7(a) Loans originated by the Originators generally range
in size from $50,000 to $1.3 million. In certain cases, an Originator may
originate a loan exceeding $1.3 million when an Originator believed the credit
is particularly strong and/or under programs, such as the International Trade
Loan Program, in which the guaranteed portion provided for larger guarantees.
Average loan sizes for originations during 1994, 1995 and 1996 were
approximately $368,000, $302,000 and $359,000, respectively.
The Originators' loan origination network is organized on a functional
basis (i.e., business development, credit underwriting and processing). Middle
management consists of regional sales managers, credit managers and processing
managers, each of whom reports to a national supervisor. The national
supervisors report to the senior vice-president of production, who reports to
the executive vice-president of the Originators, who is located in Sacramento,
California.
In addition to years of experience, the Originators consider their
employees' knowledge of SBA Rules and Regulations, responsiveness to customers,
professional demeanor and commitment to be important with respect to the
qualification and abilities of their personnel.
LOAN PURPOSE AND COLLATERAL FOR SBA SECTION 7(A) LOANS
Prior to 1986, the Originators estimate that over 50% of their SBA
Section 7(a) Loans were made as working capital and equipment loans. Since 1986,
however, the Originators have refocused their lending on owner/user commercial
real estate loans to established businesses with track records generally of at
least three to four years. The Originators have continued to develop lending for
larger owner/user commercial real estate loans to established businesses. These
loans are generally larger and better collateralized than working capital,
equipment or general- purpose small-business loans. The SBA requires that
owner/users occupy at least 67% of the mortgaged premises in the case of
newly-constructed facilities and 51% in the case of existing facilities.
A majority of the SBA Section 7(a) Loan originations have been
first-lien mortgages for either the purchase or refinancing of commercial real
estate, with the balance being loans made by the Originators to franchisees of
national franchisors and general business loans for business acquisition,
equipment purchases, working capital or debt consolidation. As described below,
where an SBA Section 7(a) Companion Loan is originated in connection with an SBA
Section 7(a) Loan, the SBA Section 7(a) Companion Loan will be secured by a
first-lien mortgage, with the SBA Section 7(a) Loan being secured by a
second-lien mortgage in addition to other collateral. SBA Section 7(a) Loans
generally are guaranteed personally by the borrower. In cases where a second or
third mortgage on a residential property is taken as additional collateral, the
Originators may not require the borrower to obtain a title insurance policy.
COMPETITION
The Originators' main competitors vary by region to region and market
to market. Its primary competitors are small independent banks such as
SierraWest Bank and the San Diego Bank of Commerce and companies such as AT&T
Capital Corporation, ITT Small Business Finance Corp. and Heller First Capital
Corporation. The Originators do not believe that any one competitor, or a small
group of competitors, is dominant in the industry. Although methods of
competition vary according to region, the Originators believe that as one of the
few SBA lenders with a national network, they are able to compete effectively in
all markets in which they operate. The Originators believe that their experience
and breadth of operations give them a unique knowledge of the intricacies of SBA
lending. The Originators believe that this knowledge, coupled with the fact SBA
lending and associated activities constitute their sole business, enables them
to respond to customers quickly and efficiently.
UNDERWRITING CRITERIA FOR SBA SECTION 7(A) LOANS
The Originators seek to control two risks through their underwriting
standards: (i) default of the actual credit and (ii) SBA repudiation of its
guaranty due to ineligibility, non-compliance with SBA lending regulations or
poor documentation. The Originators' underwriting emphasizes historical
operating performance and debt-service coverage to help determine the repayment
ability of the borrower. The Originators have established review procedures to
help ensure that all loans that they originate or acquire comply with the
requirements of the SBA.
Commercial loan officers ("CLOs") evaluate each applicant's financial
statements, credit reports, business plans and other data to determine if the
credit and collateral satisfy the Originators' standards. These standards
include historic debt-service-coverage, reasonableness of projections, strength
of management and sufficiency of secondary repayment, as well as the SBA's
eligibility rules. For each application, qualified personnel also perform a site
inspection to determine the appropriateness of the location for the proposed
business use, observe the economic conditions of the local market and inspect
the property for obvious structural defects or environmental issues (as
discussed further below).
The Originators' loan officers assess the reasonableness of
projections based primarily upon (i) their experience with other similar loans
in the same industry and area, (ii) their knowledge of the industry of the
applicant, (iii) their general experience in assessing small business loans and
(iv) the business experience of the applicant. The qualification of an applicant
to prepare such projections is generally based upon the applicant's experience
in the business area and market for which the loan is requested. Some applicants
prepare projections with the assistance of accountants, business consultants
and/or franchisors, while some applicants obtain no such assistance. Typically,
there is no independent third party review of such projections.
The Originators have a tiered system of generally acceptable maximum
Loan-to-Value Ratios or LTVs (as defined below) based on the type of property
securing a loan, the characteristics of the borrower and the industry of the
borrower. Maximum permissible Loan-to-Value Ratios also depend on the length of
time that the debt service coverage on the property has at least equaled a
specified ratio. Applicants having significantly higher earnings before interest
and taxes relative to their debt service than the Originators normally require
may be considered for higher Loan-to-Value Ratios. Conversely, applicants not
meeting the debt service requirement may be considered for a loan with a lower
Loan-to-Value Ratio than the permitted maximum based on the overall
creditworthiness of the applicant.
For commercial real estate transactions, the highest LTVs are
typically reserved for situations where general purpose property is being
financed and the subject business is in a non-cyclical industry. In such cases,
if the debt service coverage ratio (i.e., the ratio of the pro forma annual debt
service payments on the proposed debt of the subject business to the subject
businesses' annual net operating income plus certain non-cash extraordinary
items) equals and/or exceeds 1.2:1 for the most recent two full years and
interim period, a borrower may qualify for 100% LTV financing. Where general
purpose property is being financed and the business is either cyclical,
particularly interest rate sensitive and/or seasonal in nature, and where debt
service coverage meets or exceeds 1.2:1 for the most recent two full years and
interim period, the maximum permissible LTV is generally 90%. When special
purpose real estate is involved (e.g., restaurants), and debt service coverage
meets or exceeds 1.2:1 for the most recent two full years and interim period,
maximum LTVs of between 80%-90% are considered.
Applications significantly exceeding the previously mentioned debt
service requirements may receive special approval for loans with higher LTVs.
Conversely, applications which do not meet the stated debt service requirements,
but still indicate a reasonable level of repayment capacity, may still be
considered at lower LTVs. These exceptions to policy are entertained on a
case-by-case basis as warranted by the overall creditworthiness of the
applicant. Other characteristics evaluated in determining an appropriate LTV in
these situations include (but are not limited to): (i) experience, strength and
continuity of business management; (ii) overall financial strength of the
subject business as evidenced by balance sheet and profit/loss statements (e.g.,
current as well as pro forma liquidity and equity positions, historical sales
trends and profitability as well as projections); and (iii) availability of
additional sources of repayment (e.g., personal financial strength of the
applicant including liquidity, supplementary outside income(s) and/or additional
collateral).
All loan applications are submitted to a centralized loan underwriting
and processing center in Sacramento, California. The loan application package is
screened initially for completeness by a credit manager or senior loan officer,
who then assigns the package to a CLO. CLOs are responsible for analyzing the
creditworthiness of the applicant and preparing a loan memorandum, which
includes a credit analysis (including a description of the collateral), states
the purpose of the loan, strengths and weaknesses of the credit, and eligibility
for the applicable SBA program. In addition, for each proposed loan, the CLOs
perform a collateral analysis, financial analysis (including historical debt
service coverage), personal resource analysis, and business and personal credit
checks. Any real property to be taken as collateral is appraised by an
independent appraiser.
If the CLO recommends the loan for approval, the loan memorandum and
supporting documents are submitted to the senior loan officer, credit manager,
or a senior credit officer for review based on the various levels of credit
authority. Upon concurrence of the CLOs recommendation by the senior loan
officer, credit manager or senior credit officer, as the case may be, a
commitment letter and SBA submission documents are generated by the CLO and, in
most cases, forwarded to the BDO. The BDO meets with the customer to explain the
commitment letter and SBA documentation, obtains required customer signatures
and deposits, and returns the signed documents to the processing center in
Sacramento. The loan package is forwarded to a loan processing manager, who
screens the loan package for completeness and then assigns the package to a loan
processor. The loan processor prepares the Loan Authorization and Agreement, and
all necessary documentation to submit to the SBA for a loan guarantee, and for
closing the loan in strict accordance to the credit memorandum, SBA regulations,
and state and federal law.
Once loan approval has been granted, approved applications under the
Preferred Lender Program are submitted directly to the SBA's central PLP
processing center for assignment of a authorization number. Loans not made
pursuant to the Preferred Lender Program require prior approval by an SBA
district office.
Once a loan is funded, the complete original file is forwarded to loan
servicing. When the loan package is received, the final physical file is
established in a uniform manner, and a computerized "tickler system" tracks
follow-up items, such as UCC filing renewals, insurance policy expirations and
deeds of trust recording. The loan file then undergoes a final post-closing
audit, to help verify that the loan was originated in accordance with the
Sellers' procedures and consistent with the SBA's loan authorization. Once the
file has been audited and is complete, it is microfilmed.
The Originators originate loans to a variety of industries. However,
based upon their loss experience and economic forecasts obtained from industry
associations, chambers of commerce, academic institutions, governmental entities
and others, the Originators may de-emphasize lending in certain regions or
industries from time to time. The Originators also periodically have refined
their underwriting guidelines to exclude certain high-risk ventures, such as car
washes.
Collateral for SBA Section 7(a) Loans originated by the Originators
generally consists of one or more of the following: (i) first liens on
commercial real estate (or second liens when the SBA Section 7(a) Loan is
originated in conjunction with a Section 7(a) Companion Loan), (ii) second liens
on residential properties, (iii) personal guarantees and (iv) business assets.
The Originators believe that the pledge of a borrower's personal wealth provides
appropriate incentives, thereby minimizing defaults and maximizing recoveries.
Generally, the Originators do not take inventory or accounts receivable as
collateral, thereby allowing borrowers to obtain short-term financing with these
assets from other sources. The Originators also originate machinery and
equipment loans; however, some of these also are secured by real estate. For
example, loans are provided for medical/dental equipment, machinery, print shop
equipment and franchise restaurant equipment.
The Originators define the loan-to-value ratio ("LTV" or
"Loan-to-Value Ratio") of a Loan as the gross amount of the loan divided by the
total "net collateral value" of all collateral (primary and secondary, but
excluding the value of any personal guarantees) securing such loan. In
determining "net collateral value", the Originators apply discounts of appraised
value based on the type of collateral and lien position. Generally, first liens
on commercial or residential property are allowed a maximum "collateral value"
of 100% of the lower of cost or appraised value and, therefore, are not
discounted. Second and third mortgages are allowed a maximum collateral value of
80%, unless the first lien is of nominal value. The maximum collateral value
allowed for used machinery and equipment is 30% of cost and 50% for new
machinery and equipment. In determining the appropriate LTV required for a
particular credit, the Originators review the historical debt-service coverage
ratio, stability of the industry, level of equity from the borrower, purpose of
the loan, economic condition of the market and size of the loan. The Originators
usually require a 1.2x debt-service coverage ratio for the most recent two
complete years and interim period. The Originators generally do not give credit
for rental income when performing debt-service coverage analysis.
SERVICING AND COLLECTIONS OF SBA SECTION 7(A) LOANS
The Originators service substantially all the SBA Section 7(a) Loans
they originate. Servicing includes collecting payments from borrowers, remitting
payments on Guaranteed Interests to the Agent of the SBA, accounting for
principal and interest, contacting delinquent borrowers and supervising loan
liquidations.
Each quarter, borrowers are sent payment coupons and statements
showing the interest rate for the next quarter, the outstanding loan balance,
the next payment adjustment date and the monthly payment for that quarter.
The loan servicing department is responsible for all post-closing
follow-up until the loan is repaid. These duties include tracking receipt of
payments, performing field visits, analyzing post-closing financials, reviewing
UCC filings and coordinating post-closing borrower requests with the SBA (e.g.,
exchanges of collateral or assumptions). In addition, the loan servicing
department typically conducts field visits to the borrower's place of business
shortly after closing and within 24 months thereafter. Finally, all loan
documents require that borrowers submit updated financial statements. For
delinquent accounts, these statements are reviewed by the loan servicing
department to determine debt-service-coverage ratios and compliance with loan
covenants.
Delinquency reports are generated every ten days and borrowers are
contacted frequently to determine the cause of any delinquency. A customer
service officer maintains contact with each delinquent borrower until the loan
becomes current or is transferred to the credit services unit within the loan
servicing department. If a loan is chronically delinquent, even if currently
performing, the loan will be serviced by customer service until such loan is
repurchased by the SBA, and then by a credit services officer for the remainder
of the loan.
WORKOUTS AND LIQUIDATIONS OF SBA SECTION 7(A) LOANS
When an SBA Section 7(a) Loan becomes 75 days past due, the
appropriate Originator initiates procedures that result in the SBA's repurchase
of the Guaranteed Interest of the defaulted SBA Section 7(a) Loan from the
secondary market investor. In most cases the repurchase process is completed
within 30 days. The SBA tries to minimize the repurchase time frame because it
pays accrued interest (up to 120 days) on the guaranteed portion of the loan
until the loan is repurchased. After it has repurchased a Guaranteed Interest,
the SBA owns a direct participation in the related loan.
A credit services officer is assigned the responsibility for the
workout or liquidation once an SBA Section 7(a) Loan is repurchased. The loan
workout officer evaluates the borrower's corporate and personal ability to repay
and then formulates an appropriate workout plan. Generally, workout plans
indicate the expected recovery time period or the possibility of an assumption
of the debt by a third-party; plans also include liquidation options.
To some degree, the SBA is involved in every repurchased loan,
depending on the nature of the recovery and the particular SBA District. In most
cases, the SBA allows the Originators to perform workouts. In some instances,
the SBA takes over the servicing of repurchased loans. In the Originators'
experience, this happens primarily with new offices, where local SBA personnel
are unfamiliar with the Originators. In the majority of foreclosure situations,
title is assumed in the name of the SBA. In the remainder of the foreclosure
situations, at the direction of the SBA, title is assumed in the name of one of
the Originators.
In formulating workout plans, the Originators assess the value of the
collateral through a variety of sources including brokers, appraisers and other
market sources. The Originators also take steps to help protect the value of the
collateral, such as performing site visits, appraising properties and ensuring
payment of taxes and, where appropriate, maintenance of insurance. Where
necessary, the Originators engage property managers or take other measures
designed to protect the collateral value from deterioration.
Loan workouts are focused on allowing the business to recover from
temporary setbacks, if possible. The Originators believe that recoveries are
improved if the borrower is cooperative and works with the lender to achieve a
resolution. The Originators stress the development of a strong relationship with
borrowers over the long term. This generally results in cooperation by the
borrower in the workout, and the Originators generally receive substantial cash
flow from these troubled loans.
Although the SBA generally is reluctant to allow foreclosure on a
personal residence until all other avenues have been pursued, the Originators
believe that the possibility of foreclosure is a powerful incentive to borrowers
to make the loan current.
The Originators view SBA Section 7(a) Loans as small business loans as
opposed to commercial real estate mortgages. Accordingly, the workout is more
complex and the period to recovery or reinstatement takes longer than for
typical commercial real estate loans. However, because the Originators often
receive substantial cash flow from troubled assets during the workout period,
loan workouts are generally more efficient than foreclosures on the collateral.
If a borrower is uncooperative or the business is not viable, the Originators
prepare a liquidation plan and determine the likely recovery value and best
method of liquidation. The SBA must approve all liquidation plans.
On average, the workout process requires approximately 24 months. The
length of the workout is determined primarily by the complexity and long-term
viability of the business, as well as the bankruptcy status of the borrower. In
particular, a bankruptcy may lengthen the workout timeframe by approximately 12
to 18 months.
In certain cases, the Originators may forbear payments of interest and
principal for a period of three to six months if the borrower is experiencing
temporary difficulties. Under SBA servicing policy, the lender has unilateral
authority to defer loans for up to 90 days. Past 90 days, the lender must obtain
approval from the investors in the guaranteed portions, which is usually
granted. For deferments in excess of 180 days, SBA approval must be obtained.
ENVIRONMENTAL POLICY
The Originators have developed an environmental credit policy to help
minimize potential environmental liabilities. This policy conforms to the
environmental requirements set by the SBA, and many of the Originators'
guidelines are stricter than those of the SBA. The standard
environmental-related requirements for Loans secured by commercial real property
include: (i) obtaining a commitment letter from the borrower acknowledging that
the closing is contingent upon compliance with environmental laws, (ii)
obtaining a detailed environmental questionnaire from the borrower and, if
possible, the previous owner of the property, (iii) performing a site visit of
the property, (iv) checking the property against a published list of "Superfund"
sites and, if the property is listed, performing an environmental audit or, for
any Loan approved after January 1, 1996, searching a comprehensive state and
federal environmental data base for each commercial real property taken as
collateral for which a Phase I environmental report has not been ordered or
obtained and (v) obtaining a certificate from the borrower providing
representations and warranties as to the absence of hazardous substances and
providing a broad indemnification. If, after performance of these requirements,
there is any evidence of a potential environmental problem which might require
remediation, the applicable Originator will require remediation to be performed
or require a Phase I or a Phase II environmental report on the property and the
loan will be closed only after remediation to levels below regulatory agency
action levels, the property is subject to ongoing rehabilitation approved by the
SBA, with respect to SBA Loans, or if no problem is revealed. A Phase I
environmental report describes the results of an audit of the related property
performed by a licensed environmental assessment firm, which audit includes (i)
an inspection of the related and adjacent properties; (ii) a historical review
of site records; (iii) a review of files of regulatory agencies concerning the
site; and (iv) interviews with individuals knowledgeable about the site use and
operations.
In preparing a Phase I environmental report, the licensed
environmental assessment firm may contact the United States Environmental
Protection Agency, state and local water control authorities, state and local
environmental departments and local fire departments to ascertain whether a
particular property has an environmental problem and, if so, the nature thereof.
The Originators typically do not contact such authorities unless an
environmental problem has been revealed.
In the Agreement the Originators will represent and warrant that at
the time of origination of each Loan forming part of the Trust, even those
originated prior to January 1990, the related commercial real property was free
of contamination from toxic substances or hazardous wastes and that, as of the
Cut-Off Date, the Originators have no knowledge of any such contamination from
toxic substances or hazardous wastes on any commercial real property. The Master
Servicer will agree that if it has reasonable cause to believe a property may
have contamination from toxic substances or hazardous wastes, it will not
foreclose upon the related Loan until after it obtains a favorable Phase 1
environmental report.
ORIGINATION OF SECTION 7(A) COMPANION LOANS
For most applications submitted between January 1, 1995 and October
12, 1995, the maximum loan size for a loan originated under the Section 7(a)
Program was reduced administratively to $500,000. To assist qualified borrowers
in obtaining more financing when needed, the Originators introduced the Section
7(a) Companion Program pursuant to which the Originators originated a Section
7(a) Companion Loan to a borrower requesting an SBA Section 7(a) Loan from an
Originator where the total amount financed would otherwise exceed $500,000. The
Originators may originate Section 7(a) Companion Loans in the future where a
qualified borrower requests financing in an amount that otherwise exceeds the
limits of the Section 7(a) Program.
The Originators will not fund a Section 7(a) Companion Loan unless and
until the SBA issues its guaranty of the related SBA Section 7(a) Loan. The
underwriting criteria, servicing and collection procedures, workout and
liquidation policies and environmental policy for the Section 7(a) Companion
Loans are substantially the same as those described above for the SBA Section
7(a) Loans, except that The Money Store Commercial Mortgage Inc. (one of the
Originators) generally requires a debt-service coverage ratio of 1.1:1 and the
required LTV for Section 7(a) Companion Loans is generally 50%-60%. Also, the
SBA is not required to be involved in the workout or liquidation of a Section
7(a) Companion Loan. However, if in connection with the workout or liquidation
of a Section 7(a) Companion Loan, the Originators wish to workout or liquidate
the related SBA Section 7(a) Loan, the SBA will be involved in such procedures.
ORIGINATION OF SBA 504 LOANS.
The SBA 504 Loans will consist of loans originated by an Originator
under the SBA 504 Loan Program (the "SBA 504 Loan Program"). The SBA 504 Loan
Program was established under the Act to encourage lenders to provide fixed
asset financing to existing qualifying small businesses. SBA 504 Loans may be
used for plant acquisition, construction, renovation, expansion, land and site
improvements, acquisition and installation of machinery and equipment and the
interest on interim financing.
Each SBA 504 Loan originated by an Originator is secured by a first
lien on the related primary collateral, with the related loan made by the SBA
being secured by a second lien, in addition to a lien on other collateral. The
borrower is required to fund at least 10% of the total allowable project costs,
however, an Originator may require a higher percentage for certain larger
projects and projects with special credit risks. The LTV for SBA 504 Loans
generally may not exceed 55%-60%. The Originators also generally require a
minimum debt service coverage ratio of 1.1:1 for the most recent two full years
and interim periods. Applications with a lower debt service coverage ratio may
be considered, but generally only if the LTV is below approximately 55%. When
special purpose real estate is involved (e.g., restaurants), or in the case of
cyclical or interest rate sensitive industries, the Originators also generally
require LTVs below approximately 55%.
SBA 504 Loans that are originated for construction purposes generally
possess an LTV of 80% during the construction phase pending issuance of the
SBA-guaranteed debenture upon completion of the construction. Additionally,
secondary collateral required by the CDC for the related loan made by the SBA
also will serve as collateral for the interim construction loan.
Except as set forth above, the underwriting criteria, servicing and
collection procedures, workout and liquidation policies and environmental policy
for the SBA 504 Loans and the Non-SBA Loans are substantially the same as those
described above for the SBA Section 7(a) Loans, except that the SBA is not
involved in the workout or liquidation procedures.
DESCRIPTION OF THE SECURITIES
Each Series of Certificates will be issued, from time to time,
pursuant to either a Pooling and Servicing Agreement or a Trust Agreement, and
each Series of Notes will be issued, from time to time, pursuant to an
Indenture, each to be dated as of the date set forth in the related Prospectus
Supplement (each such date, a "Cut-Off Date"), among The Money Store, the
applicable Originators, and/or certain affiliates thereof, and the Trustee for
the benefit of the related Certificateholders or Noteholders, as the case may
be, of such Series. A Series may contain either Certificates or Notes or a
combination thereof. The provisions of each Agreement will vary depending upon
the nature of the Securities to be issued thereunder and the nature of the
related Trust. A form of a Pooling and Servicing Agreement, Trust Agreement,
Sale and Servicing Agreement and an Indenture have each been filed as an exhibit
to the Registration Statement of which this Prospectus is a part. The following
summaries describe certain material provisions which may appear in each
Agreement. The Prospectus Supplement for a Series of Securities will describe
any provision of the Agreement relating to such Series that materially differs
from the description thereof contained in this Prospectus. The summaries do not
purport to be complete and are subject to, and are qualified in their entirety
by reference to, all of the provisions of the Agreement for each Series of
Securities and the applicable Prospectus Supplement. The Representative will
provide a copy of the Agreement (without exhibits) relating to any Series
without charge upon written request of a holder of a Security of such Series
addressed to The Money Store, 2840 Morris Avenue, Union, New Jersey 07083,
Attention: Corporate Counsel.
GENERAL
The Securities of each Series will represent debt obligations of, in
the case of Notes, or fractional undivided ownership interests in, in the case
of Certificates, a Trust created pursuant to the related Agreement and/or such
other assets as may be described in the related Prospectus Supplement. The
Securities will be issued in fully registered form, in minimum denominations of
$1,000 and integral multiples of $1,000 in excess thereof (or such other amounts
do may be set forth in a Prospectus Supplement), except that one Certificate or
Note of each Class may be issued in a different denomination.
Definitive Securities, if issued, will be transferable and exchangeable
at the corporate trust office of the Trustee or, at the election of the Trustee,
at the office of a Security Registrar appointed by the Trustee. No service
charge will be made for any registration of exchange or transfer, but the
Trustee may require payment of a sum sufficient to cover any tax or other
governmental charge. If provided in the related Agreement, a security
administrator may perform certain duties in connection with the administration
of the Securities.
The Securities will not represent obligations of the Representative
(except with respect to a Guaranty issued in connection with a Series), the
Originators or any affiliate thereof. The assets of each Trust will consist of
one or more of the following, as set forth in the related Prospectus Supplement,
(a) the Loans that from time to time are subject to the related Agreement and
which are held in the related Pool; (b) the assets for the Trust that from time
to time are required by the Agreement to be deposited in certain reserve
accounts, including the Distribution Account, the Principal and Interest
Account, the Expense Account, the Letter of Credit Fee Account and the Insurance
Account (each, as defined herein), or to be invested in Permitted Investments
(as defined herein); (c) property and any proceeds thereof acquired by
foreclosure of the Loans in such Pool, deed in lieu of foreclosure or a
comparable conversion; (d) any Primary Mortgage Insurance Policies; (e) any
Mortgage Pool Insurance Policies; (f) any Special Hazard Insurance Policies; (g)
any Bankruptcy Bonds; and (h) all rights under any other insurance policies,
guarantees, supplemental interest payments, surety bonds, letters of credit,
guaranties of The Money Store or other credit enhancement or maturity protection
or other derivative instrument covering any Securities, any Loan in the related
Pool or any related Mortgaged Property which is required to be maintained
pursuant to the related Agreement.
Each Series of Securities will be issued in one or more Classes. Each
Class of Securities of a Series will evidence beneficial ownership of the
interest in assets of the related Trust specified in the related Prospectus
Supplement. A Class of Securities may be divided into two or more Sub-Classes,
as specified in the related Prospectus Supplement.
A Series may include two or more Classes of Certificates, as specified
in the related Prospectus Supplement, which differ as to the timing and priority
of payment, seniority, allocations of loss, Pass-Through Rate or amount of
payments of principal or interest, or as to which payments of principal or
interest may or may not be made upon the occurrence of specified events or on
the basis of collections from designated portions of the Trust Assets for such
Series. A Series of Certificates may include one or more Classes of Senior
Certificates that receive certain preferential treatment, specified in the
related Prospectus Supplement, with respect to one or more Classes of
Subordinated Certificates of such Series. Certain Series or Classes of
Certificates within a Series may be covered by a Guaranty Insurance Policy,
Mortgage Pool Insurance Policy, Special Hazard Insurance Policy, Bankruptcy Bond
or other insurance policies, cash accounts, letters of credit, financial
guaranty insurance policies, third party guarantees, supplemental interest
payments or other forms of credit enhancement or maturity protection, or
derivative products, in each case as described herein and in the related
Prospectus Supplement. The Pass-Through Rate for a Class of Certificates that
pay interest based upon a floating rate of interest, as specified in the related
Prospectus Supplement, may base such floating rate upon any of the following:
(i) the auction procedures for Auction Rate Securities described herein, (ii)
LIBOR plus an amount set forth in the related Prospectus Supplement , (iii) the
T-Bill Rate plus an amount set forth in the related Prospectus Supplement, (iv)
the Prime Rate plus an applicable spread, as set forth in the related Prospectus
Supplement, or (v) any such other method or procedures used to determine the
floating rate of interest as may be described in the applicable Prospectus
Supplement. In addition, a Series may include one or more Classes of
Certificates entitled to (a) principal payments with disproportionate, nominal
or no interest payments or (b) interest payments with disproportionate, nominal
or no principal payments (Strip Certificates).
A Series may include two or more Classes of Notes, as specified in the
related Prospectus Supplement, which differ as to the timing and priority of
payment, seniority, allocations of loss, Interest Rate or amount of payments of
principal or interest, or as to which payments of principal or interest may or
may not be made upon the occurrence of specified events or on the basis of
collections from designated portions of the Trust Assets for such Series. A
Series of Notes may include one or more Classes of Senior Notes which receive
certain preferential treatment specified in the related Prospectus Supplement
with respect to one or more Classes of Subordinated Notes of such Series.
Certain Series or Classes of Notes within a Series may be covered by a Guaranty
Insurance Policy, Mortgage Pool Insurance Policy, Special Hazard Insurance
Policy, Bankruptcy Bond or other insurance policies, cash accounts, letters of
credit, financial guaranty insurance policies, third party guarantees,
supplemental interest payments or other forms of credit enhancement or maturity
protection, or derivative products, in each case as described herein and in the
related Prospectus Supplement. The Interest Rate for a Class of Notes that pay
interest based upon a floating rate of interest, as specified in the related
Prospectus Supplement, may base such floating rate upon any of following: (i)
the auction procedures for Auction Rate Securities described herein, (ii) LIBOR
plus an amount set forth in the related Prospectus Supplement , (iii) the T-Bill
Rate plus an amount set forth in the related Prospectus Supplement, (iv) the
Prime Rate plus an applicable spread, as set forth in the related Prospectus
Supplement, or (v) any such other method or procedures used to determine the
floating rate of interest as may be described in the applicable Prospectus
Supplement. In addition, a Series may include one or more Classes of Notes
entitled to (a) principal payments with disproportionate, nominal or no interest
payments or (b) interest payments with disproportionate, nominal or no principal
payments (Strip Notes).
With respect to any Series of Securities that includes one or more
Classes of Notes, distributions in respect of the Certificates may be
subordinated in priority of payment to payments on the Notes of such Series, to
the extent specified in the related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement,
distributions of principal and interest (or, where applicable, of principal only
or interest only) on the related Securities will be made by the Trustee on each
Remittance Date, in the amounts specified in the related Prospectus Supplement.
Distributions will be made to the persons in whose names the Securities are
registered at the close of business on the record dates specified in the
Prospectus Supplement unless Definitive Securities have been issued, the
registered holder of all Securities will be Cede or such other nominee specified
in the related Prospectus Supplement. Distributions will be made by check mailed
to the persons entitled thereto at the address appearing in the register
maintained for holders of Securities (the "Security Register") or, to the extent
described in the related Prospectus Supplement, by wire transfer or by such
other means as are described therein, except that the final distribution in
retirement of the Securities will be made only upon presentation and surrender
of the Securities at the office or agency of the Trustee or other person
specified in the final distribution notice to Securityholders.
DISTRIBUTIONS ON SECURITIES
Each Class of Securities within a Series will evidence the interests
specified in the related Prospectus Supplement, which may (i) include the right
to receive distributions allocable only to principal, only to interest or to any
combination thereof; (ii) include the right to receive distributions only of
prepayments of principal throughout the lives of the Securities or during
specified periods; (iii) be subordinated in its right to receive distributions
of scheduled payments of principal, prepayments of principal, interest or any
combination thereof to one or more other Classes of Securities of such Series
throughout the lives of the Securities or during specified periods or may be
subordinated with respect to certain losses or delinquencies; (iv) include the
right to receive such distributions only after the occurrence of events
specified in the Prospectus Supplement; (v) include the right to receive
distributions in accordance with a schedule or formula or on the basis of
collections from designated portions of the assets in the related Trust; (vi)
include, as to Securities entitled to distributions allocable to interest, the
right to receive interest at a fixed rate or a floating rate; and (vii) include,
as to Securities entitled to distributions allocable to interest, the right to
distributions allocable to interest only after the occurrence of events
specified in the related Prospectus Supplement, and in each case, may accrue
interest until such events occur, as specified in such Prospectus Supplement.
Distributions allocable to principal and interest on the Securities
will be made by the Trustee out of, and only to the extent of, funds available
in the related Distribution Account and other accounts (each a "Distribution
Account") to the extent described in the related Prospectus Supplement. To the
extent described in the related Prospectus Supplement, on each Remittance Date,
the Master Servicer will withdraw from the applicable Distribution Account and
such other accounts as may be described in the related Prospectus Supplement and
distribute to the Securityholders of each Class (other than a Series having a
Class of Subordinated Certificates, as described below), either the specified
interest of such Class in the Pool times the aggregate of all amounts on deposit
in the Distribution Account as of the Determination Date, or, in the case of
Classes which have been assigned an aggregate principal balance and Pass-Through
Rate or Interest Rate, payments of interest and payments in reduction of such
aggregate principal balance from all amounts on deposit in the Distribution
Account on the Determination Date, in the priority and calculated in the manner
set forth in the related Prospectus Supplement.
The timing and amounts of distributions allocable to interest and
principal and, if applicable, Principal Prepayments and scheduled payments of
principal, to be made on any Remittance Date may vary among Classes, over time
or otherwise as specified in the Prospectus Supplement. Differing allocations of
principal and interest to different Classes of Securityholders will have the
effect of accelerating the amortization of Senior Notes or Senior Certificates,
as the case may be, while increasing the interests evidenced by the Subordinated
Notes or Subordinated Certificates, as the case may be, in the related Trust.
Distributions to any Class of Securities will be made pro rata to all
Securityholders of that Class, or as otherwise described in a Prospectus
Supplement.
SUMMARY OF AUCTION PROCEDURES
The following summarizes certain procedures that will be used in
determining the interest rates on any Notes or Certificates that are Auction
Rate Securities. Appendix I hereto contains a more detailed description of these
procedures. Prospective investors in the Auction Rate Securities should read
carefully the following summary, along with the more detailed description in
Appendix I.
The interest rate on each Class of Auction Rate Securities will be
determined periodically (generally, for periods ranging from 7 days to one year)
by means of a "Dutch Auction." In this Dutch Auction, investors and potential
investors submit orders through an eligible broker/dealer as to the principal
amount of Auction Rate Securities such investors wish to buy, hold or sell at
various interest rates. The broker/dealers submit their clients' orders to the
auction agent, who processes all orders submitted by all eligible broker/dealers
and determines the interest rate for the upcoming interest period. The
broker/dealers are notified by the auction agent of the interest rate for the
upcoming interest period and are provided with settlement instructions relating
to purchases and sales of Auction Rate Securities.
In the auction procedures, the following types of orders may be
submitted:
(i) Bid/Hold Orders - the minimum interest rate that a
current investor is willing to accept in order to
continue to hold some or all of its Auction Rate
Securities for the upcoming interest period;
(ii) Sell Orders - an order by a current investor to sell
a specified principal amount of Auction Rate
Securities, regardless of the upcoming interest rate;
and
(iii) Potential Bid Orders - the minimum interest rate that
a potential investor (or a current investor wishing
to purchase additional Auction Rate Securities) is
willing to accept in order to buy a specified
principal amount of Auction Rate Securities.
If an existing investor does not submit orders with respect to all its
Auction Rate Securities of the applicable Class, the investor will be deemed to
have submitted a Hold Order at the new interest rate for that portion of the
Auction Rate Securities for which no order was received.
In connection with each auction, Auction Rate Securities will be
purchased and sold between investors and potential investors at a price equal to
their then outstanding principal balance (i.e., par) plus any accrued interest.
The following example helps illustrate how the above-described procedures are
used in determining the interest rate on the Auction Rate Securities.
(a) Assumptions:
1. Denominations (Units) = $100,000
2. Interest Period = 28 Days
3. Principal Amount Outstanding = $50 Million (500 Units)
(b) Summary of All Orders Received For The Auction
Bid/Hold Orders Sell Orders Potential Bid Orders
10 Units at 2.90% 50 Units Sell 20 Units at 2.95%
30 Units at 3.02% 50 Units Sell 30 Units at 3.00%
60 Units at 3.05% 100 Units Sell 50 Units at 3.05%
100 Units at 3.10% 200 Units 50 Units at 3.10%
100 Units at 3.12% 50 Units at 3.11%
300 Units 50 Units at 3.14%
100 Units at 3.15%
350 Units
Total units under existing Bid/Hold Orders and Sell Orders always
equal issue size (in this case 500 units).
(c) Auction Agent Organizes Orders In Ascending Order
<TABLE>
<CAPTION>
Order Number Cumulative Order Number Cumulative Total
Number of Units Total (Units) _% _ Number __of Units_ (Units) %
- ------ -------- ------------- --- ------ --------- ------- -
<S> <C> <C> <C> <C> <C> <C> <C>
1 10(W) 10 2.90% 7 100(W) 300 3.10%
2 20(W) 30 2.95% 8 50(W) 350 3.10%
3 30(W) 60 3.00% 9 50(W) 400 3.11%
4 30(W) 90 3.02% 10 100(W) 500 3.12%
5 50(W) 140 3.05% 11 50(L) 3.14%
6 60(W) 200 3.05% 12 100(L) 3.15%
</TABLE>
(W) Winning Order (L) Losing Order
Order #10 is the order that clears the market of all available units.
All winning orders are awarded the winning rate (in this case, 3.12%) as the
interest rate for the next period that interest will accrue (each an "Interest
Period"), when another auction will be held. Multiple orders at the winning rate
are allocated units on a pro rata basis. Notwithstanding the foregoing, in no
event will the interest rate exceed the lesser of the Net Loan Rate or the
Maximum Auction Rate (each as described in Appendix I).
The above example assumes that a successful auction has occurred
(i.e., all Sell Orders and all Bid/Hold Orders below the new interest rate were
fulfilled). In certain circumstances, there may be insufficient Potential Bid
Orders to purchase all the Auction Rate Securities offered for sale. In such
circumstances, the interest rate for the upcoming Interest Period will equal the
lesser of the Net Loan Rate and the Maximum Auction Rate. Also, if all the
Auction Rate Securities are subject to Hold Orders (i.e., each holder of Auction
Rate Securities wishes to continue holding its Auction Rate Securities,
regardless of the interest rate) the interest rate for the upcoming Interest
Period will equal the lesser of the Net Loan Rate and the All Hold Rate (as
defined below).
As stated above, the foregoing is only a summary of the auction
procedures. A more detailed description of these procedures is contained in
Appendix I.
<PAGE>
MONTHLY ADVANCES AND COMPENSATING INTEREST
In order to maintain a regular flow of scheduled interest payments to
Securityholders (rather than to guarantee or insure against losses) if so
provided in the related Prospectus Supplement, the Master Servicer will be
required to advance to the Trustee, on or before each Remittance Date (from its
own funds), the amount, if any, by which (a) the sum of (x) 30 days' interest at
the applicable weighted average Adjusted Loan Remittance Rate (as defined below)
on the then outstanding principal balance of the related Series of Securities
and (y) the amount, if any, required to be deposited into the related Reserve
Account (as specified in the Prospectus Supplement) for the related Remittance
Date exceeds (b) the amount received by the Master Servicer and any
Sub-Servicers in respect of interest on the Loans as of the related Record Date
(less certain amounts not required to be deposited into the related Trust) (such
excess, the "Monthly Advance"). For each Class of Securities, the "Adjusted Loan
Remittance Rate" will equal the sum of the related Pass-Through Rate or Interest
Rate and the rate used in determining certain expenses payable by the related
Trust, as more specifically set forth in the related Prospectus Supplement. The
Master Servicer will not be required to make any Monthly Advances which it
determines, in good faith, would be nonrecoverable from amounts received in
respect of the Loans.
If so specified in the related Prospectus Supplement, not later than
the close of business on each Determination Date, with respect to each Loan for
which a Principal Prepayment in full or Curtailment was received during the
related Due Period, the Master Servicer will be required to remit to the Trustee
for deposit in the Distribution Account from amounts otherwise payable to it as
servicing compensation, an amount equal to the excess of (a) 30 days' interest
on the principal balance of each such Loan as of the beginning of the related
Due Period at the applicable weighted average Adjusted Loan Remittance Rate,
over (b) the amount of interest actually received on the related Loan for such
Due Period (such difference, "Compensating Interest").
REVOLVING PERIOD AND AMORTIZATION PERIOD; RETAINED INTEREST
If the related Prospectus Supplement so provides, there may be a
period commencing on the date of issuance of a Class or Classes of Notes and/or
Certificates of a Series and ending on the date set forth in the related
Prospectus Supplement (each, a "Revolving Period") during which limited or no
principal payments will be made to one or more Classes of Notes or Certificates
of the related Series as are identified in such Prospectus Supplement. Some or
all collections of principal otherwise allocated to such Classes of Notes or
Certificates may be (i) utilized during the Revolving Period to acquire
additional Trust Assets which satisfy the criteria specified above and the
criteria set forth in the related Prospectus Supplement, (ii) held in an account
and invested in Permitted Investments for later distribution to Securityholders,
(iii) applied to those Notes or Certificates for such Series, if any, specified
in the related Prospectus Supplement as then are in amortization, or (iv)
otherwise applied as specified in the related Prospectus Supplement.
An "Amortization Period" is the period during which an amount of
principal is payable to Holders of a Series which, during the Revolving Period,
were not otherwise entitled to such payments. If so specified in the related
Prospectus Supplement, during an Amortization Period all or a portion of
principal collections on the Loans may be applied as specified above for a
Revolving Period and, to the extent not so applied, will be distributed to the
Classes of Notes or Certificates for such Series specified in the related
Prospectus Supplement as then being entitled to payments of principal. In
addition, if so specified in the related Prospectus Supplement, amounts
deposited in certain accounts for the benefit of one or more Classes of Notes or
Certificates for such Series may be released from time to time or on a specified
date and applied as a payment of principal on such Classes of Notes or
Certificates. The related Prospectus Supplement will set forth the circumstances
which will result in the commencement of an Amortization Period.
Each Series which has a Revolving Period may also issue to the
Representative or one of its affiliates a certificate evidencing an undivided
beneficial interest (a "Retained Interest") in such Series not represented by
the other Securities issued by the Representative. As further described in the
related Prospectus Supplement, the value of such Retained Interest will
fluctuate as the amount of Notes and Certificates of the related Series of
Securities.
BOOK-ENTRY REGISTRATION
If so specified in the related Prospectus Supplement, the Certificates
and/or Notes of a Series initially will be registered in the name of Cede, the
nominee of DTC. DTC is a limited purpose trust company organized under the laws
of the State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the Uniform Commercial Code ("UCC") and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Securities Exchange Act of 1934, as amended. DTC was created to hold securities
for its participating organizations ("Participants") and facilitate the
clearance and settlement of securities transactions between Participants through
electronic book-entry changes in their accounts, thereby eliminating the need
for physical movement of certificates and notes. Participants include securities
brokers and dealers, banks, trust companies and clearing corporations and may
include certain other organizations. Indirect access to the DTC system also is
available to others such as brokers, dealers, banks and trust companies that
clear through or maintain a custodial relationship with a Participant, either
directly or indirectly ("Indirect Participant").
Under a book-entry format, Certificateholders and/or Noteholders, as
applicable, that are not Participants or Indirect Participants but desire to
purchase, sell or otherwise transfer ownership of Certificates and/or Notes of a
Series registered in the name of Cede, as nominee of DTC, may do so only through
Participants and Indirect Participants. In addition, such Securityholders will
receive all distributions of principal of and interest on the Securities and
reports relating to the Securities from the Trustee through DTC and its
Participants. Under a book-entry format, Securityholders will receive payments
and reports relating to the Securities after the related Remittance Date
because, while payments and such reports are required to be forwarded to Cede,
as nominee for DTC, on each such date, DTC will forward such payments and
reports to its Participants which thereafter will be required to forward them to
Indirect Participants or Securityholders. Unless and until Definitive Securities
are issued, it is anticipated that the only Securityholder will be Cede, as
nominee of DTC, and that the beneficial holders of Securities will not be
recognized by the Trustee as Securityholders under the Agreement. The beneficial
holders of such Certificates and/or Notes of a Series will only be permitted to
exercise the rights of Certificateholders and/or Noteholders, as applicable,
under the applicable Agreement indirectly through DTC and its Participants who
in turn will exercise their rights through DTC.
Under the rules, regulations and procedures creating and affecting DTC
and its operations, DTC is required to make book-entry transfers among
Participants on whose behalf it acts with respect to the Securities and is
required to receive and transmit reports and payments of principal of and
interest on the Securities. Participants and Indirect Participants with which
Securityholders have accounts with respect to the Securities similarly are
required to make book-entry transfers and receive and transmit such reports and
payments on behalf of their respective Securityholders. Accordingly, although
Securityholders will not possess Securities, the rules provide a mechanism by
which Securityholders will receive distributions and reports and will be able to
transfer their interests.
Unless and until Definitive Securities are issued, Securityholders who
are not Participants may transfer ownership of Securities only through
Participants by instructing such Participants to transfer Securities, by
book-entry transfer, through DTC for the account of the purchasers of such
Securities, which account is maintained with their respective Participants.
Under the Rules and in accordance with DTC's normal procedures, transfers of
ownership of Securities will be executed through DTC and the accounts of the
respective Participants at DTC will be debited and credited. Similarly, the
respective Participants will make debits or credits, as the case may be, on
their records on behalf of the selling and purchasing Securityholders.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a
Securityholder to pledge Securities to persons or entities that do not
participate in the DTC system, or otherwise take actions in respect of such
Securities may be limited due to the lack of a physical certificate for such
Securities.
DTC in general advises that it will take any action permitted to be
taken by a Securityholder under an Agreement only at the direction of one or
more Participants to whose account with DTC the Securities are credited.
Additionally, DTC in general advises that it will take such actions with respect
to specified percentages of the Securityholders only at the direction of and on
behalf of Participants whose holdings include current principal amounts of
outstanding Securities that satisfy such specified percentages. DTC may take
conflicting actions with respect to other current principal amounts of
outstanding Securities to the extent that such actions are taken on behalf of
Participants whose holdings include such current principal amounts of
outstanding Securities.
Any Notes and/or Certificates initially registered in the name of
Cede, as nominee of DTC, will be issued in fully registered, certificated form
to Securityholders or their nominees ("Definitive Securities"), rather than to
DTC or its nominee only under the events specified in the related Agreement and
described in the related Prospectus Supplement. Upon the occurrence of any of
the events specified in the related Agreement and Prospectus Supplement, DTC
will be required to notify all Participants of the availability through DTC of
Definitive Securities. Upon surrender by DTC of the certificates and/or notes
representing the Securities and instruction for re-registration, the Trustee
will issue the Notes and/or Certificates in the form of Definitive Securities,
and thereafter the Trustee will recognize the holders of such Definitive
Securities as Securityholders. Thereafter, payments of principal of and interest
on the Securities will be made by the Trustee directly to Securityholders in
accordance with the procedures set forth herein and in the related Agreement.
The final distribution of any Security (whether Definitive Securities or
Securities registered in the name of Cede), however, will be made only upon
presentation and surrender of such Securities on the final Remittance Date at
such office or agency as is specified in the notice of final payment to
Securityholders.
CREDIT ENHANCEMENT
GENERAL
Credit enhancement may be provided with respect to one or more Classes
of a Series of Securities or with respect to the Trust Assets in the related
Trust. Credit enhancement may be in the form of (i) the subordination of one or
more Classes of the Notes and/or Certificates of such Series, (ii) the use of a
Guaranty Insurance Policy, Spread Amount, Mortgage Pool Insurance Policy,
Special Hazard Insurance Policy, Bankruptcy Bond, Reserve Accounts, Supplemental
Interest Payments, a letter of credit, a limited financial guaranty insurance
policy, a Guaranty of The Money Store, other third party guarantees or maturity
protection, derivative insturments, another method of credit enhancement
described in the related Prospectus Supplement, or the use of a cross-support
feature, or (iii) any combination of the foregoing. Credit enhancement will not
provide protection against all risks of loss and will not guarantee repayment of
the entire principal balance of the Securities and interest thereon. If losses
occur which exceed the amount covered by credit enhancement or which are not
covered by the credit enhancement, holders of one or more Classes of Securities
will bear their allocable share of deficiencies. If a form of credit enhancement
applies to several Classes of Securities, and if principal payments equal to the
aggregate principal balances of certain Classes will be distributed prior to
such distributions to other Classes, the Classes which receive such
distributions at a later time are more likely to bear any losses which exceed
the amount covered by credit enhancement. Coverage under any credit enhancement
may be canceled or reduced by the Master Servicer or the Representative if such
cancellation or reduction would not adversely affect the rating or ratings of
the related Securities. The Trustee of the related Trust will have the right to
sue providers of credit enhancement if a default is made on a required payment.
SUBORDINATION
All Classes of Certificates are Subordinated in right of payment to
any Class of Notes in a given Series to the extent described in the related
Prospectus Supplement. To enhance the likelihood of regular receipt by holders
of Senior Certificates or Senior Notes, as the case may be, of the full amount
of payments which they would be entitled to receive in the absence of any losses
or delinquencies, if so specified in the related Prospectus Supplement,
distributions of scheduled principal, Principal Prepayments, interest or any
combination thereof that otherwise would have been payable to one or more
Classes of Subordinated Certificates or Subordinated Notes, as the case may be,
of a Series will instead be payable to holders of one or more Classes of Senior
Certificates or Senior Notes, as the case may be, under the circumstances and to
the extent specified in the Prospectus Supplement. If specified in the related
Prospectus Supplement, the holders of Senior Certificates or Senior Notes, as
the case may be, will receive the amounts of principal and/or interest due to
them on each Remittance Date, out of the funds available for distribution on
such date in the related Distribution Account, prior to any such distribution
being made to holders of the related Subordinated Certificates or Subordinated
Notes, a the case may be, in each case under the circumstances and subject to
the limitations specified in the Prospectus Supplement. The protection afforded
to the holders of Senior Certificates or Senior Notes, as the case may be,
through subordination also may be accomplished by first allocating certain types
of losses or delinquencies to the related Subordinated Certificates or
Subordinated Notes, as the case may be, to the extent described in the related
Prospectus Supplement. If aggregate losses and delinquencies in respect of such
Loans were to exceed the total amounts payable and available for distribution to
holders of Subordinated Certificates or Subordinated Notes, as the case may be,
or, if applicable, were to exceed the specified maximum amount, holders of
Senior Certificates or Senior Notes, as the case may be, would experience losses
on the Securities.
In addition to or in lieu of the foregoing, if so specified in the
Prospectus Supplement, all or any portion of distributions otherwise payable to
holders of Subordinated Certificates or Subordinated Notes, as the case may be,
on any Remittance Date may instead be deposited into one or more Reserve
Accounts established and maintained with the Trustee. If so specified in the
Prospectus Supplement, such deposits may be made on each Remittance Date, on
each Remittance Date for specified periods or until the balance in the Reserve
Account has reached a specified amount and, following payments from the Reserve
Account to holders of Senior Certificates or Senior Notes, as the case may be,
or otherwise, thereafter to the extent necessary to restore the balance in the
Reserve Account to required levels, in each case as specified in the Prospectus
Supplement. If so specified in the related Prospectus Supplement, amounts on
deposit in the Reserve Account may be released to the holders of the Class of
Securities specified in the Prospectus Supplement at the times and under the
circumstances specified in the Prospectus Supplement. See "--Reserve Accounts"
below.
If so specified in the related Prospectus Supplement, the same Class
of Securities may be Senior Certificates or Senior Notes, as the case may be,
with respect to certain types of payments or certain types of losses or
delinquencies and Subordinated Certificates or Subordinated Notes, as the case
may be, with respect to other types of payment or types of losses or
delinquencies. If specified in the related Prospectus Supplement, various
Classes of Senior Certificates or Senior Notes, as the case may be, and
Subordinated Certificates or Subordinated Notes, as the case may be, may
themselves be subordinate in their right to receive certain distributions to
other Classes of Senior and Subordinated Certificates or Subordinated Notes, as
the case may be, respectively, through a cross support mechanism or otherwise.
As between Classes of Senior Certificates or Senior Notes, as the case may be,
and as between Classes of Subordinated Certificates or Subordinated Notes, as
the case may be, distributions may be allocated among such Classes (i) in the
order of their scheduled final Remittance Dates, (ii) in accordance with a
schedule or formula, (iii) in relation to the occurrence of events, or (iv)
otherwise, in each case as specified in the Prospectus Supplement. The related
Prospectus Supplement will set forth information concerning the amount of
subordination of a Class or Classes of Subordinated Certificates or Subordinated
Notes, as the case may be, in a Series, the circumstances in which such
subordination will be applicable, the manner, if any, in which the amount of
subordination will decrease over time, the manner of funding any Reserve
Account, and the conditions under which amounts in any such Reserve Account will
be used to make distributions to Senior Holders of Senior Certificates or Senior
Notes, as the case may be, or released to Holder of Subordinated Certificates or
Subordinated Notes, as the case may be, from the related Trust.
GUARANTY INSURANCE POLICIES
If so specified in the related Prospectus Supplement, a Guaranty
Insurance Policy may be obtained and maintained for any Class or Series of
Certificates and/or Notes. The issuer of any Guaranty Insurance Policy (a
"Security Guaranty Insurer") will be described in the related Prospectus
Supplement. A copy of any such Guaranty Insurance Policy will be attached as an
exhibit to the related Prospectus Supplement.
If so specified in the related Prospectus Supplement, a Guaranty
Insurance Policy will unconditionally and irrevocably guarantee to
Securityholders that an amount equal to each full and complete Insured Payment
will be received by an agent of the Trustee (an "Insurance Paying Agent") on
behalf of Securityholders, for distribution by the Trustee to each
Securityholder. The "Insured Payment" will equal the full amount of the
distributions of principal and interest to which Securityholders are entitled
under the related Agreement plus any other amounts specified therein or in the
related Prospectus Supplement.
The specific terms of any Guaranty Insurance Policy will be as set
forth in the related Prospectus Supplement. Guaranty Insurance Policies may have
limitations including (but not limited to) limitations on the insurer's
obligation to guarantee the Master Servicer's obligation to repurchase or
substitute for any Loans, to guarantee any specified rate of prepayments or to
provide funds to redeem Certificates and/or Notes on any specified date.
Subject to the terms of the related Agreement, the Guaranty Insurer
may be subrogated to the rights of each Securityholder to receive payments under
the Securities to the extent of any payments by such Security Guaranty Insurer
under the related Guaranty Insurance Policy.
SPREAD AMOUNT
If so specified in the related Prospectus Supplement, certain Classes
of Securities may be entitled to receive limited acceleration of principal
relative to the amortization of the related Trust Assets. The accelerated
amortization will be achieved by applying certain excess interest collected on
the Trust Assets to the payment of principal on such Classes of Securities. This
acceleration feature is intended to create an amount (the "Spread Amount"),
resulting from, and generally equal to, the excess of the aggregate principal
balances of the applicable Trust Assets over the principal balances of the
applicable Classes of Securities. Once the required Spread Amount is reached,
and subject to the provisions described in the next sentence and in the related
Prospectus Supplement, the acceleration feature will cease, unless necessary to
maintain the required level of the Spread Amount. The applicable Agreement will
provide that, subject to certain floors, caps and triggers, the required level
of the Spread Amount may increase or decrease over time. An increase would
result in a temporary period of accelerated amortization of the applicable
Classes of Securities to increase the actual level of the Spread Amount to its
required level; a decrease would result in a temporary period of decelerated
amortization to reduce the actual level of the Spread Amount to its required
level. An Agreement also may provide that after one or more Classes of
Securities have been paid to the required level of the Spread Amount, excess
interest, together with certain other excess amounts, may be applied to make-up
shortfalls in, or accelerate the amortization of, other Classes of Securities.
MORTGAGE POOL INSURANCE POLICIES
If specified in the Prospectus Supplement related to any Pool of
Loans, a Mortgage Pool Insurance Policy issued by the insurer (the "Pool
Insurer") named in such Prospectus Supplement will be obtained and maintained
for each Series pertaining to Loans. Each Mortgage Pool Insurance Policy will,
subject to the limitations described below, cover loss by reason of default in
payment on the related Loans in the Pool in an amount, unless otherwise
specified in the related Prospectus Supplement, initially equal to a specified
percentage of the aggregate principal balance of all Loans included in the Pool
as of the Cut-Off Date or such other date as is specified in such Prospectus
Supplement. The Mortgage Pool Insurance Policies, however, are not blanket
policies against loss, since claims thereunder may only be made respecting
particular defaulted Loans and only upon satisfaction of certain conditions
precedent described below.
A Mortgage Pool Insurance Policy generally will not insure (and many
Primary Mortgage Insurance Policies do not insure) against loss sustained by
reason of a default arising from, among other things, (i) fraud or negligence in
the origination or servicing of a Loan, including misrepresentation by the
Mortgagor, the originator or persons involved in the origination thereof, or
(ii) failure to construct a Mortgaged Property in accordance with plans and
specifications. If so specified in the related Prospectus Supplement, an
endorsement to the Mortgage Pool Insurance Policy, a bond or other credit
support may cover fraud in connection with the origination of Loans. If so
specified in the related Prospectus Supplement, a failure of coverage
attributable to an event specified in clause (i) or (ii) above might result in a
breach of the Master Servicer's representations described above and, in such
event, might give rise to an obligation on the part of the Master Servicer to
purchase the defaulted Loan if the breach cannot be cured by the Master
Servicer. No Mortgage Pool Insurance Policy will cover (and many Primary
Mortgage Insurance Policies do not cover) a claim in respect of a defaulted Loan
occurring when the servicer of such Loan, at the time of default or thereafter,
was not approved by the applicable insurer.
The original amount of coverage under each Mortgage Pool Insurance
Policy will be reduced over the life of the related Securities by the aggregate
dollar amount of claims paid less the aggregate of the net amounts realized by
the Pool Insurer upon disposition of all foreclosed properties. The amount of
claims paid will include certain expenses incurred by the Master Servicer as
well as accrued interest on delinquent Loans to the date of payment of the
claim. Accordingly, if aggregate net claims paid under any Mortgage Pool
Insurance Policy reach the original policy limit, coverage under that Mortgage
Pool Insurance Policy will be exhausted and any further losses will be borne by
the Securityholders.
SPECIAL HAZARD INSURANCE POLICIES
If specified in the related Prospectus Supplement, a separate Special
Hazard Insurance Policy will be obtained for the Pool and will be issued by the
insurer (the "Special Hazard Insurer") named in such Prospectus Supplement. Each
Special Hazard Insurance Policy will, subject to limitations described below,
protect holders of the related Securities from (i) loss by reason of damage to
Mortgaged Properties caused by certain hazards (including earthquakes and, to a
limited extent, tidal waves and related water damage) not insured against under
the standard form of hazard insurance policy for the respective states in which
the Mortgaged Properties are located or under a flood insurance policy if the
Mortgaged Property is located in a federally designated flood area, and (ii)
loss caused by reason of the application of the coinsurance clause contained in
hazard insurance policies. See "The Agreement--Hazard Insurance." No Special
Hazard Insurance Policy will cover losses occasioned by war, civil insurrection,
certain governmental action, errors in design, faulty workmanship or materials
(except under certain circumstances), nuclear reaction, flood (if the Mortgaged
Property is located in a federally designated flood area), chemical
contamination and certain other risks. The amount of coverage under any Special
Hazard Insurance Policy will be specified in the related Prospectus Supplement.
Each Special Hazard Insurance Policy will provide that no claim may be paid
unless hazard and, if applicable, flood insurance on the property securing the
Loan has been kept in force and other protection and preservation expenses have
been paid.
Unless otherwise specified in the related Prospectus Supplement, since
each Special Hazard Insurance Policy will be designed to permit full recovery
under the Mortgage Pool Insurance Policy in circumstances in which such
recoveries would otherwise be unavailable because property has been damaged by a
cause not insured against by a standard hazard policy and thus would not be
restored, each Agreement will provide that, if the related Mortgage Pool
Insurance Policy shall have been terminated or been exhausted through payment of
claims, the Master Servicer will be under no further obligation to maintain such
Special Hazard Insurance Policy.
BANKRUPTCY BONDS
If specified in the related Prospectus Supplement, a Bankruptcy Bond
for proceedings under the federal Bankruptcy Code will be issued by an insurer
named in such Prospectus Supplement. Each Bankruptcy Bond will cover certain
losses resulting from a reduction by a bankruptcy court of scheduled payments of
principal and interest on a Loan or a reduction by such court of the principal
amount of a Loan and will cover certain unpaid interest on the amount of such a
principal reduction from the date of the filing of a bankruptcy petition. The
required amount of coverage under each Bankruptcy Bond will be set forth in the
related Prospectus Supplement. To the extent specified in an applicable
Prospectus Supplement, the Master Servicer may deposit cash, an irrevocable
letter of credit or any other instrument acceptable to each nationally
recognized rating agency rating the Securities of the related Series in the
Trust to provide protection in lieu of or in addition to that provided by a
Bankruptcy Bond. See "Certain Legal Aspects of the Loans--Anti-Deficiency
Legislation and Other Limitations on Lenders."
RESERVE ACCOUNTS
If specified in a Prospectus Supplement, cash, U.S. Treasury
securities, instruments evidencing ownership of principal or interest payments
thereon, letters of credit, demand notes, certificates of deposit or a
combination thereof in the aggregate amount specified in the Prospectus
Supplement may be deposited by the Master Servicer or Representative on the date
specified in the Prospectus Supplement in one or more Reserve Accounts
established with the Trustee. In addition to or in lieu of the foregoing, if so
specified in such Prospectus Supplement, all or any portion of distributions
otherwise payable to holders of Subordinated Certificates on any Remittance Date
may instead be deposited into such Reserve Accounts. Such deposits may be made
on the date specified in the Prospectus Supplement, which may include each
Remittance Date, each Remittance Date for specified periods or until the balance
in the Reserve Account has reached a specified amount. See "--Subordination"
above.
The cash and other assets in the Reserve Accounts will be used to
enhance the likelihood of timely payment of principal of, and interest on, or,
if so specified in the Prospectus Supplement, to provide additional protection
against losses in respect of, the assets in the related Trust, to pay the
expenses of the Trust or for such other purposes specified in the Prospectus
Supplement. Any cash in a Reserve Account and the proceeds upon maturity or
liquidation of any other asset or instrument therein will be invested, to the
extent acceptable to the applicable Rating Agency, in obligations of the United
States and certain agencies thereof, certificates of deposit, certain commercial
paper, time deposits and bankers acceptances sold by eligible commercial banks,
certain repurchase agreements of United States government securities with
eligible commercial banks and certain other instruments acceptable to the
applicable Rating Agency ("Permitted Investments"). Any asset or instrument
deposited in the Reserve Account generally will name the Trustee, in its
capacity as trustee for the Securityholders, as beneficiary and will be issued
by an entity acceptable to the applicable Rating Agency. Additional information
with respect to such instruments deposited in the Reserve Accounts will be set
forth in the Prospectus Supplement.
Any amounts so deposited and payments on assets and instruments
deposited in a Reserve Account will be available for withdrawal from such
Reserve Account for distribution to Securityholders for the purposes, in the
manner and at the times specified in the Prospectus Supplement.
SUPPLEMENTAL INTEREST PAYMENTS
If so specified in the Prospectus Supplement, one or more Classes of
Securities may be entitled to receive supplemental interest payments under
specified circumstances. Supplemental interest payments will be available to
fund some or all of the difference, if any, between the interest owed to a Class
of Securities on a Remittance Date and the interest that would be available to
pay such interest assuming no defaults or delinquencies on the Trust Assets.
Such differences may result if the interest rates on the applicable Classes of
Securities are based upon an index that differs from the index used in
determining the interest rates on the Trust Assets. Except as otherwise provided
in a Prospectus Supplement, supplemental interest payments will not be available
to fund shortfalls resulting from delinquencies or defaults on the Trust Assets.
MATURITY PROTECTION
If so specified in the Prospectus Supplement, one or more Classes of
Securities may be entitled to third-party payments to help provide that the
holders of such Securities receive their unpaid principal on or prior to a
specified date.
OTHER INSURANCE, GUARANTEES, SWAPS, AND SIMILAR INSTRUMENTS OR AGREEMENTS
If specified in the related Prospectus Supplement, a Trust may include
in lieu of some or all of the foregoing or in addition thereto letters of
credit, financial guaranty insurance policies, a Guaranty of The Money Store,
other third party guarantees, limited guarantees or insurance from agencies or
instrumentalities of the United States, and other arrangements for maintaining
timely payments or providing additional protection against losses on the assets
included in such Trust, paying administrative expenses, or accomplishing such
other purpose as may be described in the Prospectus Supplement. The Trust may
include a guaranteed investment contract or reinvestment agreement pursuant to
which funds held in one or more accounts will be invested at a specified rate.
If any Class of Securities has a floating interest rate, or if any of the
Trust Assets has a floating interest rate, the Trust may include an interest
rate swap contract, an interest rate cap agreement or similar hedge contract
providing limited protection against interest rate risks. If provided in the
related Prospectus Supplement, interest and/or principal on one or more Classes
of the Securities of a Series may be paid to Holders thereof in a currency other
than U.S. dollars. If so provided, the Trust may, in connection therewith, enter
into one or more currency rate swaps to provide limited protection against
foreign currency rate fluctuation risks. One or more Classes of Securities also
may be issued in conjunction with a put or call feature entitling (in the case
of a put) or obligating (in the case of a call) the applicable Securityholders
to sell some or all of its Securities to the party named in the applicable
Prospectus Supplement on the date or dates set forth therein. Any such
arrangements must be acceptable to each nationally recognized rating agency that
provides a rating for the related Series of Securities (the "Rating Agency").
CROSS SUPPORT
If specified in the related Prospectus Supplement, the beneficial
ownership of separate groups of assets included in a Trust may be evidenced by
separate Classes of the related Series of Securities. In such case, credit
support may be provided by a cross-support feature which requires that
distributions be made with respect to Securities evidencing a beneficial
ownership interest in other asset groups within the same Trust. The Prospectus
Supplement for a Series which includes a cross-support feature will describe the
manner and conditions for applying such cross-support feature.
If specified in the related Prospectus Supplement, the coverage
provided by one or more forms of credit support may apply concurrently to two or
more separate Trusts. If applicable, the Prospectus Supplement will identify the
Trusts to which such credit support relates and the manner of determining the
amount of the coverage provided thereby and of the application of such coverage
to the identified Trusts.
MATURITY, PREPAYMENT AND YIELD CONSIDERATIONS
The yields to maturity of the Securities will be affected by the
amount and timing of principal payments on or in respect of the Trust Assets
included in the related Trusts, the allocation of available funds to various
Classes of Securities, the Pass-Through Rate or Interest Rate for various
Classes of Securities and the purchase price paid for the Securities.
The original terms to maturity of the Loans in a given Pool will vary
depending upon the type of Loans included therein. Each Prospectus Supplement
will contain information with respect to the type and maturities of the Loans in
the related Pool. Loans generally may be prepaid without penalty in full or in
part at any time.
In general, prepayment of Loans is likely to increase when the level
of prevailing interest rates for similar loans declines significantly, although
the prepayment rate is influenced by a number of other factors, including
general economic conditions. Similarly, when the level of prevailing interest
rates rises, prepayment rates may decrease. No prediction can be made as to the
prepayment rate that the Loans will actually experience.
The prepayment experience of the Pools may be affected by a wide
variety of factors, including general and local economic conditions, mortgage
market interest rates and the availability of alternative financing. The
Representative is unaware of any reliable studies that would project the
prepayment risks associated with the Loans based upon current interest rates and
economic conditions or the historical prepayment experience of The Money Store's
and its affiliates' portfolios of Loans.
Greater than anticipated prepayments of principal will increase the
yield on Securities purchased at a price less than par. Similarly, greater than
anticipated prepayments of principal will decrease the yield on Securities
purchased at a price greater than par. The effect on an investor's yield of
principal prepayments on the Loans occurring at a rate that is faster (or
slower) than the rate anticipated by the investor in the period immediately
following the issuance of the applicable Class of Securities may not be offset
by a subsequent like reduction (or increase) in the rate of principal payments.
The weighted average lives of Securities will also be affected by the
amount and timing of delinquencies and defaults on the Loans and the recoveries,
if any, on defaulted Loans and foreclosed properties. Delinquencies and defaults
will generally slow the rate of payment of principal to the Securityholders.
However, this effect will be offset to the extent that lump sum recoveries on
defaulted Loans and foreclosed properties result in principal payments on the
Securities faster than otherwise scheduled.
When a full prepayment or Curtailment occurs on a Loan, the Mortgagor
will be charged interest on the principal amount of the Loan so prepaid only for
the number of days in the month actually elapsed up to the date of the
prepayment rather than for a full month. If so specified in the related
Prospectus Supplement, in the event that less than 30 days' interest is
collected on a Loan during a Due Period, whether due to prepayment in full or a
Curtailment, the Master Servicer will be obligated to pay Compensating Interest
with respect thereto, but only to the extent of the aggregate Servicing Fee and
Contingency Fee for the related Remittance Date. To the extent such shortfalls
exceed the amount of Compensating Interest that the Master Servicer is obligated
to pay, and are not otherwise covered by Insured Payments, the yield on the
Securities could be adversely affected.
Under certain circumstances, the Master Servicer, certain insurers,
the holders of REMIC Residual Certificates or certain other entities specified
in the related Prospectus Supplement may have the option to purchase the Trust
Assets and other assets of a Trust, thereby effecting earlier retirement of the
related Series of Securities. See "The Agreement--Termination; Purchase of
Loans."
If so specified in the related Prospectus Supplement, the effective
yield to certain Securityholders may be slightly lower than the yield otherwise
produced by the applicable Remittance Rate and purchase price, because while
interest generally will accrue on such Securities from the first day of each
month, the distribution of such interest will not be made earlier than a
specified date in the month following the month of accrual.
In addition, if so specified in the related Prospectus Supplement,
prepayments may result from amounts on deposit, if any, in the Pre-Funding
Account at the end of the Funding Period being applied to the payment of
principal of the Securities.
The Prospectus Supplement relating to a Series of Securities will
discuss in greater detail the effect of the rate and timing of principal
payments (including prepayments) on the yield, weighted average lives and
maturities of such Securities. Factors other than those identified herein and in
the related Prospectus Supplement could significantly affect principal
prepayments at any time and over the lives of the Securities.
THE AGREEMENTS
Set forth below is a summary of certain provisions of each Agreement
which are not described elsewhere in this Prospectus. The summary does not
purport to be complete and is subject to, and qualified in its entirety by
reference to, the provisions of each Agreement. Where particular provisions or
terms used in the Agreements are referred to, such provisions or terms are as
specified in the Agreements.
SALE OF LOANS
Pursuant to each related Pooling and Servicing Agreement or Sale and
Servicing Agreement, as the case may be, at the time of issuance of Securities
of a Series, the Originators and/or The Money Store will sell to the related
Trust, without recourse, all interest of the Originators and/or The Money Store
in each of the Trust Assets comprising the assets of such Trust and all interest
in all actual payments collected after the Cut-Off Date with respect to such
Trust Assets.
In addition, to the extent specified in the related Prospectus
Supplement, the net proceeds received from the sale of the Securities of a given
Series will be applied to the deposit of the Pre-Funded Amount into the
Pre-Funding Account. The aggregate principal balance of additional Trust Assets
to be purchased for the related Trust generally will be equal to the Pre-Funded
Amount on the date of the issuance of the related Series. On each applicable
purchase date, the Originators and/or The Money Store will sell to the related
Trust, without recourse, the entire interest of the Originators and/or The Money
Store in the additional Trust Assets identified in a schedule attached to a
supplemental conveyance relating to such additional Trust Assets executed on
such date by the Originators and/or The Money Store. In connection with each
purchase of additional Trust Assets, the related Trust will be required to pay
to the Originators and/or The Money Store a cash purchase price equal to the
outstanding principal balance of each additional Trust Asset as of its related
Cut-Off Date. The purchase price will be withdrawn from the Pre- Funding Account
and paid to the Originators and/or The Money Store so long as the
representations and warranties set forth in "--Representations and Warranties"
below apply to each additional Trust Asset to be conveyed, and the conditions
set forth in the paragraph below and in the related Agreement are satisfied. The
Originators and/or The Money Store will convey the additional Trust Assets to
the related Trust on the applicable purchase date pursuant to the Agreement.
Any conveyance of additional Trust Assets will be subject to the
following conditions, among others specified in the related Prospectus
Supplement: (i) each such additional Trust Asset must satisfy the eligibility
criteria specified in the related Agreement as of its applicable Cut-Off Date
and such additional criteria as may be specified in the related Prospectus
Supplement; (ii) if and to the extent specified in the related Prospectus
Supplement, the third-party credit enhancement provider, if any, shall have
approved the transfer of such additional Trust Assets to the related Trust;
(iii) neither the Originator nor The Money Store will have selected such
additional Trust Assets in a manner that either believes is adverse to the
interests of Securityholders; and (iv) the Originator and The Money Store will
deliver certain opinions of counsel to the Trustee(s) and the Rating Agencies
with respect to the validity of the conveyance of such additional Trust Assets.
In connection with such transfer and assignment, unless otherwise set
forth in a Prospectus Supplement the Representative and/or the Originators will
deliver to the Trustee or, with respect to the notes executed by borrowers
evidencing a loan (each a "Loan Note") relating to the SBA Section 7(a) Loans
being delivered pursuant to (a) below, to the fiscal and transfer agent of the
SBA (the "Agent of the SBA"), the following documents with respect to each Loan
(collectively, the "Trustee's Document File"):
(a) The original Loan Note, endorsed by means of an allonge as
follows (bracketed language is only for SBA Section 7(a) Loans): "Pay
to the order of [Name of Trustee], and its successors and assigns, as
trustee under that certain Pooling and Servicing Agreement dated as of
____________, 199_ for the benefit of [the United States Small
Business Administration and] holders of The Money Store Asset-Backed
[Certificates] [Notes], Series 199_-_, Class __ and Class __ [, as
their respective interests may appear], without recourse" and signed,
by facsimile or manual signature, in the name of the applicable
Originator by a Responsible Officer, with all prior and intervening
endorsements showing a complete chain of endorsement from the
originator to the applicable Originator, if such Originator was not
the originator;
(b) With respect to those Loans secured by Mortgaged Properties,
either: (i) the original mortgage or deed of trust (each a
"Mortgage"), with evidence of recording thereon, (ii) a copy of the
Mortgage certified as a true copy by a Responsible Officer of the
applicable Originator where the original has been transmitted for
recording until such time as the original is returned by the public
recording office or duly licensed title or escrow officer or (iii) a
copy of the Mortgage certified by the public recording office in those
instances where the original recorded Mortgage has been lost;
(c) With respect to those Loans secured by Mortgaged Properties,
either: (i) the original Assignment of Mortgage from the applicable
Seller endorsed as follows (bracketed language is only for SBA Section
7(a) Loans): "[Name of Trustee], ("Assignee") its successors and
assigns, as trustee under the Pooling and Servicing Agreement dated as
of ____________, 199_[, subject to the Multi-Party Agreement dated as
of _______________, 199_]" with evidence of recording thereon
(provided, however, that where permitted under the laws of the
jurisdiction wherein the Mortgaged Property is located, the Assignment
of Mortgage may be effected by one or more blanket assignments for
Loans secured by Mortgaged Properties located in the same county), or
(ii) a copy of such Assignment of Mortgage certified as a true copy by
a Responsible Officer of the applicable Originator where the original
has been transmitted for recording (provided, however, that where the
original Assignment of Mortgage is not being delivered to the Trustee,
each such Responsible Officer may complete one or more blanket
certificates attaching copies of one or more Assignments of Mortgage
relating to the Mortgages originated or acquired by the applicable
Originator);
(d) With respect to those Loans secured by Mortgaged Properties,
either: (i) originals of all intervening assignments, if any, showing
a complete chain of title from the originator to the applicable
Originator, including warehousing assignments, with evidence of
recording thereon if such assignments were recorded, (ii) copies of
any assignments certified as true copies by a Responsible Officer of
the applicable Originator where the originals have been submitted for
recording until such time as the originals are returned by the public
recording officer, or (iii) copies of any assignments certified by the
public recording office in any instances where the original recorded
assignments have been lost;
(e) With respect to those Loans secured by Mortgaged Properties,
either: (i) originals of any title insurance policies relating to the
Mortgaged Properties or (ii) copies of any title insurance policies or
other evidence of lien position, including but not limited to PIRT
policies, limited liability reports and lot book reports, to the
extent the Originators obtain such policies or other evidence of lien
position, certified as true by the applicable Originator;
(f) For all Loans, blanket assignment of all collateral securing
the Loan, including without limitation, all rights under applicable
guarantees and insurance policies;
(g) For all Loans, irrevocable power of attorney of the
applicable Originator to the Trustee to execute, deliver, file or
record and otherwise deal with the collateral for the Loans in
accordance with the Agreement. The power of attorney will be delegable
by the Trustee to the Master Servicer and any successor servicer and
will permit the Trustee or its delegate to prepare, execute and file
or record UCC financing statements and notices to insurers; and
(h) For all Loans, blanket UCC-1 financing statements identifying
by type all collateral for the Loans in each of the Pools and naming
the Trustee, and with respect to the SBA Section 7(a) Loans, the SBA,
as Secured Parties and the applicable Originator as the Debtor.
Notwithstanding the foregoing, the Representative or the applicable
Originators will not be required to record the Assignments of Mortgage to the
Trustee if the Representative delivers opinions of counsel, satisfactory to the
Ratings Agencies, to the effect that recordation of such Assignments of Mortgage
is not required in the relevant jurisdictions to protect the interests of the
Trustee in the Loans.
REPRESENTATIONS AND WARRANTIES
Each Originator will represent to the Trustee and the Securityholders,
among other things, with respect to each Loan originated or acquired by it, as
of the related Cut-Off Date or such other date as may be set forth in an
Agreement:
(1) The information with respect to each Loan set forth in the Loan
Schedule is true and correct;
(2) All of the original or certified documentation set forth in the
Agreement (including all material documents related thereto) has been or will be
delivered to the Trustee or, with respect to the SBA Section 7(a) Loans, the
Agent of the SBA, or as otherwise provided in the related Agreement;
(3) Each Loan has been originated or acquired by an Originator in
accordance with the applicable underwriting criteria set forth herein and is
being serviced by the Master Servicer or one or more Subservicers;
(4) With respect to those Loans secured by a Mortgaged Property, each
Mortgage is a valid and subsisting lien of record on the Mortgaged Property
subject only to any applicable prior liens on such Mortgaged Property and
subject in all cases to such exceptions that are generally acceptable to banking
institutions in connection with their regular commercial lending activities, and
such other exceptions to which similar properties are commonly subject and which
do not individually, or in the aggregate, materially and adversely affect the
benefits of the security intended to be provided by such Mortgage;
(5) Each Section 7(a) Companion Loan, if any, is secured by a
Mortgaged Property, which security interest is senior to the security interest
in such Mortgaged Property granted in connection with the related SBA Section
7(a) Loan and each SBA 504 Loan, if any, is secured by a Mortgaged Property,
which security interest is senior to the security interest in such Mortgaged
Property granted in connection with the related loan made by the SBA;
(6) Immediately prior to the transfer and assignment contemplated by
the Agreement, the applicable Originator held good and indefeasible title to,
and was the sole owner of each Section 7(a) Companion Loan, each SBA 504 Loan,
each Non-SBA Loan, and the Unguaranteed Interest of each SBA Section 7(a) Loan,
conveyed by the Originator subject to no liens, charges, mortgages, encumbrances
or rights of others except as set forth in paragraphs(4) and (5) above or other
liens which will be released simultaneously with such transfer and assignment;
(7) As of the related Cut-Off Date, no Loan will be more than 59 days
delinquent in payment;
(8) To the best of the Originator's knowledge, there will be no
delinquent tax or assessment lien on any Mortgaged Property which is the primary
collateral for the related loan, and each such Mortgaged Property will be free
of material damage and will be in good repair;
(9) No Loan will be subject to any right of rescission, set-off,
counterclaim or defense, including the defense of usury, nor will the operation
of any of the terms of the Loan or any related Mortgage, or the exercise of any
right thereunder, render either the Loan or any related Mortgage unenforceable
in whole or in part, or subject to any right of rescission, set-off,
counterclaim or defense, including the defense of usury, and no such right of
rescission, set-off, counterclaim or defense has been asserted with respect
thereto;
(10) Each Loan at the time it was made complied in all material
respects with applicable state and federal laws and regulations, including,
without limitation, usury, equal credit opportunity, disclosure and recording
laws and, with respect to the SBA Loans, the applicable SBA Rules and
Regulations;
(11) The Originator requires that the improvements upon each Mortgaged
Property which is the primary collateral for the related loan are covered by a
valid and existing hazard insurance policy with a generally acceptable carrier
that provides for fire and extended coverage;
(12) The Originator requires that if a Mortgaged Property is in an
area identified in the Federal Register by the Federal Emergency Management
Agency as having special flood hazards, a flood insurance policy is in effect
with respect to such Mortgaged Property with a generally acceptable carrier;
(13) Each Loan will conform, and all such Loans in the aggregate will
conform, to the descriptions thereof set forth in this Prospectus and the
related Prospectus Supplement;
(14) The terms of each Loan and the related Mortgage or other security
agreement pursuant to which collateral was pledged will not have been impaired,
altered or modified in any respect, except by a written instrument which has
been recorded, if necessary, to protect the interest of the SBA, with respect to
the SBA Section 7(a) Loans, and the Securityholders and which will have been
delivered to the Trustee;
(15) Each Mortgaged Property which is the primary collateral for the
related Loan will be, at the time of origination of such Loan, and to the best
of the Originator's knowledge will be, as of the related Cut-Off Date, below
regulatory agency action levels of contamination from toxic substances or
hazardous wastes or is subject to ongoing environmental rehabilitation, which,
with respect to the SBA Loans, must be approved by the SBA;
(16) With respect to each Loan secured by a Mortgaged Property and
that is not a first mortgage loan, either (i) no consent for the Loan is
required by the holder of any related prior lien or (ii) such consent has been
obtained;
(17) Any related Mortgage will contain customary and enforceable
provisions which render the rights and remedies of the holder thereof adequate
for the realization against the Mortgaged Property of the benefits of the
security, including, (i) in the case of a Mortgage designated as a deed of
trust, by trustee's sale, and (ii) otherwise by judicial foreclosure. There will
be no homestead or other exemption available to the Mortgagor which would
materially interfere with the right to sell the Mortgaged Property at a
trustee's sale or the right to foreclose the Mortgage; and
(18) There will be no default, breach, violation or event of
acceleration existing under each Loan and no event which, with the passage of
time or with notice and the expiration of any grace or cure period, would
constitute a default, breach, violation or event of acceleration, and the
Originators will not have waived any default, breach, violation or event of
acceleration.
Pursuant to the Agreement, upon the discovery by The Money Store, the
Originators, the Master Servicer, any Subservicer or the Trustee of a breach of
any of the representations and warranties contained in the Agreement relating to
an Originator or the Loans which materially and adversely affects the value of
the Loans or the interest of the Securityholders in the related Loan in the case
of a representation or warranty relating to a particular Loan (notwithstanding
that such representation and warranty was made to the applicable Originator's
best knowledge), the party discovering such breach is required to give prompt
written notice to the other parties. Within 60 days of the earlier to occur of
its discovery or its receipt of notice of any such breach, the appropriate
Originator will, (x) if such Loan is an SBA Section 7(a) Loan, (i) promptly cure
such breach in all material respects, (ii) purchase the Unguaranteed Interest of
such SBA Section 7(a) Loan from its own funds at a price equal to the then
current principal balance of the Unguaranteed Interest of such SBA Section 7(a)
Loan as of the date of purchase, plus 30 days' interest thereon at the related
Adjusted Loan Remittance Rate as of the next succeeding Determination Date, plus
any accrued unpaid Servicing Fees, Monthly Advances and Servicing Advances
reimbursable to the Master Servicer, which purchase price shall be deposited in
the Principal and Interest Account on the next succeeding Determination Date or
(iii) remove such SBA Section 7(a) Loan from the related Trust and substitute
one or more qualified SBA Section 7(a) Loans; or (y) if such Loan is a Section
7(a) Companion Loan, an SBA 504 Loan or a Non-SBA Loan, (i) promptly cure such
breach in all material respects, (ii) purchase such Loan from its own funds
at a price equal to the then current principal balance of such Loan as of
the date of purchase, plus 30 days' interest thereon at the related Adjusted
Loan Remittance Rate as of the next succeeding Determination Date, plus any
accrued unpaid Servicing Fees, Monthly Advances and Servicing Advances
reimbursable to the Master Servicer, which purchase price shall be deposited in
the Principal and Interest Account on the next succeeding Determination Date or
(iii) remove such Loan from the related Trust and substitute one or more
qualified Loans of similar type. In addition, the Originators will agree to
indemnify the related Trust, the Trustee, the Securityholders, and, with respect
to SBA Loans, the SBA, against any loss arising from a material breach of any
such representation and warranty. The obligation of the Originators to so
purchase or substitute and to indemnify the Securityholders and the Trustee will
constitute the sole remedy respecting a material breach of any such
representation or warranty to the Securityholders or the Trustee.
PAYMENTS ON THE LOANS
The Agreement will require the Master Servicer to establish and
maintain one or more principal and interest accounts (each a "Principal and
Interest Account") at one or more institutions designated as a "Designated
Depository Institution" in the Agreement.
All funds in the Principal and Interest Accounts will be required to
be held (i) uninvested, up to the limits insured by the Federal Deposit
Insurance Corporation or (ii) invested in instruments designated as "Permitted
Instruments" in the Agreement. Any investment earnings on funds held in the
Principal and Interest Accounts are for the account of the Master Servicer.
The Master Servicer is required to deposit in the Principal and
Interest Account (within two Business Days of receipt): (i) all payments
received after the Cut-Off Date on account of interest on the Loans (net of the
portion thereof, if any, required to be paid to the holders of the Guaranteed
Interest, the Agent of the SBA's Fee, the Additional Fee, the Servicing Fee and
other servicing compensation payable to the Master Servicer as permitted by the
Agreement) and such other amounts as may be described in the Prospectus
Supplement, (ii) all payments received after the Cut-Off Date on account of
principal on the Loans (or with respect to SBA Section 7(a) Loans, the
Unguaranteed Interest of all such sums received), including all Excess Payments,
Principal Prepayments, Curtailments, Net Liquidation Proceeds, Insurance
Proceeds (other than amounts to be applied to the restoration or repair of the
related Mortgaged Property, or to be released to the Obligor) and Released
Mortgaged Property Proceeds (or with respect to SBA Section 7(a) Loans, the
Unguaranteed Interest of all such sums received), (iii) any amounts paid in
connection with the repurchase of a Loan, or with respect to SBA Section 7(a)
Loans, the Unguaranteed Interest of such Loan, and the amount of any adjustment
for substituted Loans, (iv) the amount of any losses incurred in connection with
investments in Permitted Instruments and (v) certain amounts relating to
insufficient insurance policies and foreclosed property.
GENERAL SERVICING STANDARDS
Unless otherwise specified in the related Prospectus Supplement, the
Master Servicer will agree to master service the Loans in accordance with the
related Agreement and, with respect to the SBA Section 7(a) Loans, the Multi-
Party Agreement and the SBA Rules and Regulations. As used herein, "SBA Rules
and Regulations" means the SBA Act, all rules and regulations promulgated from
time to time thereunder and the Loan Guaranty Agreement. Pursuant to each
Agreement and in accordance with applicable SBA Rules and Regulations, the
Master Servicer will be required to make reasonable efforts to collect all
payments called for under the terms of the related Loan. Nonetheless, the Master
Servicer, in determining the type of action that is reasonable to pursue may
consider, among other things, the unpaid principal balance of a Loan against the
estimated cost of collection or foreclosure action, the unpaid balance of the
related prior mortgage, if any, the condition and estimated market value ("as
is" and "if repaired"), the estimated marketability of the related Mortgaged
Property and the borrower's ability to repay.
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
The Master Servicer will be entitled to a servicing fee (the
"Servicing Fee") and, to the extent set forth in the related Prospectus
Supplement, a contingency fee (the "Contingency Fee") equal to the percentages
per annum specified in the related Prospectus Supplement of the principal
balance of each Loan. The Contingency Fee is meant to provide additional
servicing compensation to a successor servicer if The Money Store or one of its
affiliates is replaced as Master Servicer under the related Agreement. However,
as long as The Money Store or one of its affiliates acts as Master Servicer, it
will be entitled to receive any applicable Contingency Fee, although such amount
is not deemed servicing compensation. Unless otherwise specified in the related
Prospectus Supplement, the Servicing Fee and Contingency Fee, if any, will each
be calculated and payable monthly from the interest portion of scheduled monthly
payments, liquidation proceeds and certain other collected proceeds. In
addition, the Master Servicer will be entitled under the Agreement to retain
additional servicing compensation in the form of assumption and other
administrative fees, any applicable prepayment penalties, premiums and late
payment charges, interest paid on funds in the Principal and Interest Account,
interest paid on earnings realized on Permitted Instruments, and certain other
excess amounts.
The Master Servicer will be required to pay all reasonable and
customary "out-of-pocket" costs and expenses incurred in the performance of its
obligations under the Agreements, including, but not limited to, the cost of (i)
the preservation, restoration and protection of a Mortgaged Property, (ii) any
enforcement or judicial proceedings, including foreclosures, and (iii) the
management and liquidation of Mortgaged Property and other collateral acquired
in satisfaction of the related Loan. Such expenditures may include costs of
collection efforts, reappraisals, forced placement of hazard insurance if a
borrower allows his hazard policy to lapse, legal fees in connection with
foreclosure actions, advancing payments on the related senior mortgage, if any,
advances of delinquent property taxes, upkeep and maintenance of the property if
it is acquired through foreclosure and similar types of expenses. Each such
expenditure constitutes a "Servicing Advance." The Master Servicer will be
obligated to make the Servicing Advances incurred in the performance of its
servicing obligations. The Master Servicer will be entitled to recover Servicing
Advances to the extent permitted by the Loans or, if not theretofore recovered
from the Mortgagor on whose behalf such Servicing Advance was made, from
Liquidation Proceeds, Released Mortgaged Property Proceeds, Insurance Proceeds
and such other amounts as may be collected by the Master Servicer from the
Mortgagor or otherwise relating to the Loan. Servicing Advances will be
reimbursable to the Master Servicer from the sources described above out of the
funds on deposit in the Principal and Interest Account.
HAZARD INSURANCE
The Master Servicer will be required under each Agreement to maintain
fire and hazard insurance with extended coverage customary in the area where a
Mortgaged Property is located. Such requirements vary from region to region. If
at origination of a Loan, to the best of the Master Servicer's knowledge after
reasonable investigation, the related Mortgaged Property is in an area
identified in the Federal Register by the Flood Emergency Management Agency as
having special flood hazards (and such flood insurance has been made available)
consistent with the SBA Rules and Regulations, if applicable, the Master
Servicer will require the related obligor to purchase a flood insurance policy
with a generally acceptable insurance carrier, in an amount representing
coverage not less than the lesser of (a) the full insurable value of the
Mortgaged Property, or (b) the maximum amount of insurance available under the
National Flood Insurance Act of 1968, as amended. The Master Servicer will also
be required to maintain, to the extent such insurance is available and in
accordance with the SBA Rules and Regulations, if applicable, and the Master
Servicer's policies, on Foreclosed Property constituting real property, fire and
hazard insurance in the amounts described above and liability insurance. Any
amounts collected by the Master Servicer under any such policies (other than
amounts to be applied to the restoration or repair of the Mortgaged Property, or
to be released to the Obligor in accordance with the SBA Rules and Regulations,
if applicable), are required to be deposited by the Master Servicer in the
Principal and Interest Account.
REALIZATION UPON DEFAULTED LOANS WITH RELATED MORTGAGES
In accordance with SBA Rules and Regulations and with the prior
written consent of the SBA, the Master Servicer will be required to foreclose
upon or otherwise comparably effect the ownership in the name of the SBA of
Mortgaged Properties relating to defaulted SBA Section 7(a) Loans as to which no
satisfactory arrangements can be made for collection of delinquent payments.
Although the consent of the SBA will not be required for the Master Servicer to
foreclose on a Mortgaged Property relating to a Section 7(a) Companion Loan, the
Master Servicer will have to obtain such consent in connection with the related
SBA Section 7(a) Loan. No consent of the SBA will be required for the Master
Servicer to foreclose on a Mortgaged Property relating to an SBA 504 Loan or a
Non-SBA Loan. In connection with such foreclosure or other conversion, the
Master Servicer will be required to exercise collection and foreclosure
procedures with the same degree of care and skill in its exercise or use, as it
would exercise or use under the circumstances in the conduct of its own affairs.
The Master Servicer will take into account the existence of any hazardous
substances, hazardous wastes or solid wastes on Mortgaged Properties in
determining whether to foreclose upon or otherwise comparably convert the
ownership of such Mortgaged Property, and will not foreclose on a Mortgaged
Property where it has cause to believe contamination from such substances exists
unless it has received a Phase I environmental report and such report reveals no
environmental problems, or such Mortgaged Property is subject to an
environmental rehabilitation for which the Originators are not responsible.
WAIVERS AND DEFERMENTS OF CERTAIN PAYMENTS
The Agreement will require the Master Servicer to make reasonable
efforts to collect all payments called for under the terms and provisions of the
Loans. Consistent with the foregoing and the SBA Rules and Regulations, if
applicable, the Master Servicer may in its discretion waive any assumption fee
or any other fee or charge which the Master Servicer would be entitled to retain
as servicing compensation and may waive, vary or modify any term of any Loan or
consent to the postponement of strict compliance with any such term or in any
matter grant indulgence to any Mortgagor, subject to the limitations set forth
in the Agreement. In the event the Master Servicer consents to the deferment of
the due dates for payments due on a Loan, the Master Servicer will nonetheless
make payment of any required Monthly Advance with respect to the payments so
extended to the same extent as if such installment were due, owing and
delinquent and had not been deferred.
SUB-SERVICERS
The Master Servicer will be permitted under the related Agreement to
enter into sub-servicing arrangements with sub-servicers meeting the
requirements of the related Agreement (each, a "Sub-Servicer"). Such
sub-servicing arrangements will not relieve the Master Servicer of any liability
it might otherwise have, had the sub-servicing arrangement not been entered
into.
The Master Servicer is required to deliver to the Trustee and the SBA
on or before March 31 of each year, an Officers' Certificate stating, as to each
signer thereof, that (i) the Master Servicer has fully complied with certain
provisions of the Agreement relating to servicing of the Loans and payments on
the Securities, (ii) a review of the activities of the Master Servicer during
such preceding year and of performance under the Agreement has been made under
such officers' supervision, and (iii) to the best of such officers' knowledge,
based on such review, the Master Servicer has fulfilled all its obligations
under the Agreement for such year, or, if there has been a default in the
fulfillment of any such obligation, specifying each such default known to such
officers and the nature and status thereof including the steps being taken by
the Master Servicer to remedy such default.
On or before March 31 of each year, the Master Servicer is required to
cause to be delivered to the Trustee a letter or letters of a firm of nationally
recognized independent certified public accountants reasonably acceptable to the
Trustee stating that such firm has, with respect to the Master Servicer's
overall servicing operations, examined such operations in accordance with the
requirements of the Uniform Single Audit Program for Mortgage Bankers, and
stating such firm's conclusions relating thereto.
REMOVAL AND RESIGNATION OF MASTER SERVICER
The Security Guaranty Insurer, if any, or the Holders of not less than
50 percent of each Class of Securities, other than the holders of residual
interests, if any (the "Majority Securityholders"), by notice in writing to the
Master Servicer and with the prior written consent of the Security Guaranty
Insurer, if any, which consent may not be unreasonably withheld, may, pursuant
to the related Agreement, remove the Master Servicer upon the occurrence of any
of the following events:
(i) (a) an Event of Nonpayment (as defined below) if the Series
has the benefit of a Guaranty Insurance Policy; (B) the failure by the
Master Servicer to make any required Servicing Advance to the extent
such failure materially or adversely affects the interests of the
Security Guaranty Insurer, if any, or the Securityholders; (C) the
failure by the Master Servicer to make any required Monthly Advance;
(D) the failure by the Master Servicer to remit any Compensating
Interest; or (E) any failure by the Master Servicer to remit to the
Trustee any payment required to be made under the terms of the related
Agreement, which in each case continues unremedied (in the case of the
events described in clauses (i) (a) , (i) (B), (i) (D) and (i) (E) for
30 days) after the date upon which written notice of such failure,
requiring the same to be remedied, shall have been given to the Master
Servicer by the Trustee or to the Master Servicer and the Trustee by
any Securityholder or the Security Guaranty Insurer, if any; or
(ii) failure by the Master Servicer or The Money Store (so long
as The Money Store is the Master Servicer) duly to observe or perform,
in any material respect, any other covenants, obligations or
agreements of the Master Servicer or the Representative, as set forth
in the related Agreement, which failure continues unremedied for a
period of 60 days after the date on which written notice of such
failure, requiring the same to be remedied, shall have been given to
the Master Servicer or The Money Store, as the case may be, by the
Trustee or to the Master Servicer or The Money Store, as the case may
be, and the Trustee by any Securityholder or the Security Guaranty
Insurer, if any; or
(iii) a decree or order of a court or agency or supervisory
authority having jurisdiction for the appointment of a conservator or
receiver or liquidator in any insolvency, readjustment of debt,
marshaling of assets and liabilities or similar proceedings, or for
the winding-up or liquidation of its affairs, shall have been entered
against the Master Servicer and such decree or order shall have
remained in force, undischarged or unstayed for a period of 60 days;
or
(iv) the Master Servicer shall consent to the appointment of a
conservator or receiver or liquidator in any insolvency, readjustment
of debt, marshaling of assets and liabilities or similar proceedings
of or relating to the Master Servicer or of or relating to all or
substantially all of the Master Servicer's property; or
(v) the Master Servicer shall admit in writing its inability to
pay its debts as they become due, file a petition to take advantage of
any applicable insolvency or reorganization statute, make an
assignment for the benefit of its creditors, or voluntarily suspend
payment of its obligations.
Unless otherwise specified in the related Prospectus Supplement, an
"Event of Nonpayment" will generally be defined in the Agreements as a shortfall
on any Remittance Date in moneys (excluding any amounts representing Insured
Payments) available to fund the full amount of the Distribution Amounts due on
such Remittance Date.
The Master Servicer may not assign its obligations under the Agreement
nor resign from the obligations and duties thereby imposed on it except by
mutual consent of the Master Servicer, the Security Guaranty Insurer, if any,
the SBA, the Trustee and the Majority Securityholders, or upon the determination
that the Master Servicer's duties thereunder are no longer permissible under
applicable law and such incapacity cannot be cured by the Master Servicer. No
such resignation shall become effective until a successor has assumed the Master
Servicer's responsibilities and obligations in accordance with the Agreement.
Upon removal or resignation of the Master Servicer, the Trustee will
be the successor servicer (the "Successor Servicer"), except that the Trustee as
Successor Servicer will not be required to make Monthly Advances and certain
other advances to the extent that the Trustee determines reasonably and in good
faith that such advances would not be recoverable. If, however, the Trustee is
unwilling or unable to act as Successor Servicer, or if the SBA or the Security
Guaranty Insurer, if any, so request, the Trustee may appoint, or petition a
court of competent jurisdiction to appoint, any established mortgage loan
servicing institution acceptable to the SBA, the Security Guaranty Insurer, if
any, or such other entities as may be specified in a Prospectus Supplement,
having a net worth of not less than $15,000,000 and which is an approved SBA
guaranteed lender in good standing as the Successor Servicer in the assumption
of all or any part of the responsibilities, duties or liabilities of the Master
Servicer.
The Successor Servicer will be entitled to receive the Servicing Fee,
the Contingency Fee, if any, and such other compensation as is described under
"--Servicing and Other Compensation and Payment of Expenses" above.
TERMINATION; PURCHASE OF LOANS
The Trust established under a Pooling and Servicing Agreement or a
Trust Agreement will terminate upon notice to the Trustee following the earlier
to occur of (i) the final payment or other liquidation of such last Loan
remaining in the related Trust or the disposition of all REO Property, (ii) the
optional purchase of the assets of the Trust by the Master Servicer or the
Security Guaranty Insurer, if any, as described below, (iii) mutual consent of
the Master Servicer, the Security Guaranty Insurer, if any, and all
Securityholders in writing; or (iv) if a REMIC election has been made for the
related Trust, the occurrence of a "qualified liquidation" of the Trust, as
permitted by the REMIC provisions of the Code as described below; provided,
however, that in no event will any Trust terminate later than twenty-one years
after the death of the last survivor of the person named in the related
Agreement.
Subject to provisions in an Agreement concerning adopting a plan of
complete liquidation, on any date on which the aggregate principal balances of
the Loans are less than 10% of the Original Pool Principal Balance (or such
other percentage as may be specified in the related Prospectus Supplement), the
Master Servicer may, at its option, and in the absence of the exercise thereof
by the Master Servicer, the Security Guaranty Insurer, if any, may, at its
option, purchase, on the next succeeding Remittance Date, all of the Loans and
any related REO Properties at a price equal to the Termination Price. If so
provided in the related Prospectus Supplement, the Master Servicer or another
entity may purchase some or all of the Loans under the circumstances described
in such Prospectus Supplement.
On any Remittance Date on or after the Cross-Over Date on which Loans
with an aggregate principal balance as of the Cut-Off Date that equals or
exceeds 25% of the Original Pool Principal Balance (or such other percentage as
may be specified in the related Prospectus Supplement) have become liquidated
Loans, the Security Guaranty Insurer, if any, may determine to purchase and may
cause the purchase from the Trust of all Loans and REO Properties in the Pool at
a price equal to the sum of the Termination Price and the outstanding and unpaid
fees and expenses of the Trustee and the Master Servicer.
Indenture. The Indenture will be discharged with respect to a Series
of Notes (except with respect to certain continuing rights specified in the
Indenture) upon the delivery to the Trustee for cancellation of all the Notes of
such Series or, with certain limitations, upon deposit with the Trustee of funds
sufficient for the payment in full of all of the Notes of such Series.
In addition to such discharge with certain limitations, the Indenture
may provide that, if so specified with respect to the Notes of any Series, the
related Trust Fund will be discharged from any and all obligations in respect of
the Notes of such Series (except for certain obligations relating to temporary
Notes and exchange of Notes, to register the transfer of or exchange Notes of
such Series, to replace stolen, lost or mutilated Notes of such Series, to
maintain paying agencies and to hold monies for payment in trust) upon the
deposit with the Trustee, in trust, of money and/or direct obligations of or
obligations guaranteed by the United States of America which, through the
payment of interest and principal in respect thereof in accordance with their
terms, will provide money in an amount sufficient to pay the principal of and
each installment of interest on the Notes of such Series on the final scheduled
Remittance Date for such Notes and any installment of interest on such Notes in
accordance with the terms of the Indenture and the Notes of such Series. In the
event of any such defeasance and discharge of Notes of such Series, holders of
Notes of such Series would be able to look only to such money and/or direct
obligations for payment of principal and interest, if any, on their Notes until
maturity.
REMIC Considerations. If a REMIC election is made for a Series of
Securities, following a final determination by the Internal Revenue Service (the
"IRS") or by a court of competent jurisdiction, in either case from which no
appeal is taken within the permitted time for such appeal, or if any appeal is
taken, following a final determination of such appeal from which no further
appeal can be taken, to the effect that the REMIC does not and will no longer
qualify as a REMIC pursuant to Section 860D of the Code (the "Final
Determination"), at any time on or after the date which is 30 calendar days
following such Final Determination (i) the Majority Securityholders may direct
the Trustee on behalf of such Trust to adopt a "plan of complete liquidation"
(within the meaning of Section 860F(a) (4)(B)(i) of the Code) with respect to
such REMIC and (ii) the Security Guaranty Insurer, if any, may notify the
Trustee of the Security Guaranty Insurer's determination to purchase from the
Trust all Loans and all property theretofore acquired by foreclosure, deed in
lieu of foreclosure, or otherwise in respect of any Loan, then remaining in such
REMIC at a price (the "Termination Price") equal to the sum of (x) 100% of the
aggregate principal balances of such Loans as of the day of purchase minus
amounts remitted from the Principal and Interest Account to the Distribution
Account representing collections of principal on such Loans during the current
Due Period, (y) 30 days' interest on such amount computed at the applicable
weighted average of the Adjusted Loan Remittance Rates, and (z) the interest
portion of any unreimbursed Insured Payment made by the Security Guaranty
Insurer, if any. Upon receipt of such direction by the Majority Securityholders
or of such notice from the Security Guaranty Insurer, the Trustee will notify
the holders of the residual interest in the Trust (the "Class R Certificates")
of such election to liquidate or such determination to purchase, as the case may
be (the "Termination Notice"). The Holders of a majority of the percentage
interest of the Class R Certificates then outstanding may, within 60 days from
the date of receipt of the Termination Notice (the "Purchase Option Period"), at
their option, purchase from the related Trust all Loans and all property
theretofore acquired by foreclosure, deed in lieu of foreclosure, or otherwise
in respect of any Loan then remaining in the REMIC at a purchase price equal to
the Termination Price.
If, during a Purchase Option Period, the holders of the Class R
Certificates have not exercised the option described in the immediately
preceding paragraph, then upon the expiration of the Purchase Option Period (i)
in the event that the Majority Securityholders have given the Trustee the
direction described in clause (i) above, the Trustee is required to sell the
Loans and such other property in the REMIC and distribute the proceeds of the
liquidation of the REMIC, each in accordance with the plan of complete
liquidation, such that, if so directed, the liquidation of the REMIC and the
distribution of the proceeds of the liquidation occur no later than the close of
the 60th day, or such later day as the Majority Securityholders shall permit or
direct in writing, after the expiration of the Purchase Option Period and (ii)
in the event that the Security Guaranty Insurer has given the Trustee notice of
the Security Guaranty Insurer's determination to purchase the assets described
in clause (ii) preceding, the Security Guaranty Insurer shall so purchase such
assets within 60 days after the expiration of the Purchase Option Period.
Following a Final Determination, the holders of a majority of the
percentage interest of the Class R Certificates then outstanding may, at their
option and upon delivery to the Trustee and the Security Guaranty Insurer, if
any, of an opinion of nationally recognized tax counsel selected by the Holders
of such Class R Certificates, which opinion shall be reasonably satisfactory in
form and substance to the Majority Securityholders and the Security Guaranty
Insurer, if any, that the effect of the Final Determination is to increase
substantially the probability that the gross income of the REMIC will be subject
to federal taxation, purchase from the Trust all Loans and all property
theretofore acquired by foreclosure, deed in lieu of foreclosure, or otherwise
in respect of any Loan then remaining in the applicable REMIC at a purchase
price equal to the Termination Price. The foregoing opinion shall be deemed
satisfactory unless the Majority Securityholders give the holders of a majority
of percentage interests in the Class R Certificates notice that such opinion is
not satisfactory within thirty days after receipt of such opinion.
CONTROL BY HOLDERS
Each Agreement will provide that the Majority Securityholders may
exercise any trust or power conferred on the Trustee with respect to the
Securities or the Trusts, upon satisfaction of certain conditions set forth in
the Agreements; provided, however, that with respect to any action or event
affecting only one or more Classes of Securities, only Holders of such Class or
Classes may exercise such trust or power.
EVENTS OF DEFAULT UNDER THE INDENTURE; RIGHTS OF NOTEHOLDERS
Unless otherwise specified in the related Prospectus Supplement,
Events of Default under the Indenture for each Series of Notes include: (i) a
default for thirty (30) days or more in the payment of any principal of or
interest on any Note of such Series; (ii) failure to perform any other covenant
of the Representative or the Trust Fund in the Indenture which continues for a
period of sixty (60) days after notice thereof is given in accordance with the
procedures described in the related Prospectus Supplement; (iii) any
representation or warranty made by the Representative or the Trust Fund in the
Indenture or in any certificate or other writing delivered pursuant thereto or
in connection therewith with respect to or affecting such Series having been
incorrect in a material respect as of the time made, and such breach is not
cured within sixty (60) days after notice thereof is given in accordance with
the procedures described in the related Prospectus Supplement; (iv) certain
events of bankruptcy, insolvency, receivership or liquidation of the
Representative or the Trust Fund; or (v) any other Event of Default provided
with respect to Notes of that Series.
If an Event of Default with respect to the Notes of any Series at the
time outstanding occurs and is continuing, either the Trustee or the Holders of
a majority of the then aggregate outstanding amount of the Notes of such Series
may declare the principal amount of all the Notes of such Series to be due and
payable immediately. Such declaration may, under certain circumstances, be
rescinded and annulled by the Holders of a majority in aggregate outstanding
amount of the Notes of such Series.
If, following an Event of Default with respect to any Series of Notes,
the Notes of such Series have been declared to be due and payable, the Trustee
may, in its discretion, notwithstanding such acceleration, elect to maintain
possession of the collateral securing the Notes of such Series and to continue
to apply distributions on such collateral as if there had been no declaration of
acceleration if such collateral continues to provide sufficient funds for the
payment of principal of and interest on the Notes of such Series as they would
have become due if there had not been such a declaration. In addition, the
Trustee may not sell or otherwise liquidate the collateral securing the Notes of
a Series following an Event of Default other than a default in the payment of
any principal or interest on any Note of such Series for thirty (30) days or
more, unless (a) the Holders of 100% of the then aggregate outstanding amount of
the Notes of such Series consent to such sale, (b) the proceeds of such sale or
liquidation are sufficient to pay in full the principal of and accrued interest
due and unpaid on the outstanding Notes of such Series at the date of such sale
or (c) the Trustee determines that such collateral would not be sufficient on an
ongoing basis to make all payments on such Notes as such payments would have
become due if such Notes had not been declared due and payable, and the Trustee
obtains the consent of the Holders of 66B% of the then aggregate outstanding
amount of the Notes of such Series.
In the event that the Trustee liquidates the collateral in connection
with an Event of Default involving a default for thirty (30) days or more in the
payment of principal of or interest on the Notes of a Series, the Indenture
provides that the Trustee will have a prior lien on the proceeds of any such
liquidation for unpaid fees and expenses. As a result, upon the occurrence of
such an Event of Default, the amount available for distribution to the
Noteholders may be less than would otherwise be the case. However, the Trustee
may not institute a proceeding for the enforcement of its lien except in
connection with a proceeding for the enforcement of the lien of the Indenture
for the benefit of the Noteholders after the occurrence of such an Event of
Default.
Unless otherwise specified in the related Prospectus Supplement, in
the event the principal of the Note of a Series is declared due and payable, as
described above, the Holders of any such Notes issued at a discount from par may
be entitled to receive no more than an amount equal to the unpaid principal
amount thereof less the amount of such discount which is unamortized.
Subject to the provisions of the Indenture relating to the duties of
the Trustee, in case an Event of Default shall occur and be continuing with
respect to a Series of Notes, the Trustee will be under no obligation to
exercise any of the rights or powers under the Indenture at the request or
direction of any of the Holders of Notes of such Series, unless such Holders
offered to the Trustee security or indemnity satisfactory to it against the
costs, expenses and liabilities which might be incurred by it in complying with
such request or direction. Subject to such provisions for indemnification and
certain limitations contained in the Indenture, the Holders of a majority of the
then aggregate outstanding amount of the Notes of such Series shall have the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee or exercising any trust or power conferred on
the Trustee with respect to the Notes of such Series, and the Holders of a
majority of the then aggregate outstanding amount of the Notes of such Series
may, in certain cases, waive any default with respect thereto, except a default
in the payment of principal or interest or a default in respect of a covenant or
provision of the Indenture that cannot be modified without the waiver or consent
of all the Holders of the outstanding Notes of such Series affected thereby.
AMENDMENT
Each Agreement may be amended from time to time by the Master Servicer
and the Trustee by written agreement, upon the prior written consent of the SBA
and the Security Guaranty Insurer, if any, without the notice to, or consent of,
the Securityholders, to cure any ambiguity, to correct or supplement any
provisions therein, to comply with any changes in the Code, or to make any other
provisions with respect to matters or questions arising under the Agreement
which are not inconsistent with the provisions of such Agreement, or any
agreement for the retention of each Trustee's Document File; provided, however,
that such action shall not, as evidenced by an Opinion of Counsel delivered to
the Trustee, adversely affect the interest of any Securityholder or any other
party and further provided that no such amendment shall reduce in any manner the
amount of, or delay the timing of, any amounts which are required to be
distributed on any Securities without the consent of the Holder of such Security
or change the rights or obligations of any other party thereto without the
consent of such party.
Each Agreement may be amended from time to time by The Money Store,
the Master Servicer, the Trustee and the Holders of the majority of the
percentage interest in each Class of Securities affected thereby, upon the prior
written consent of the SBA and the Security Guaranty Insurer, if any, for the
purpose of adding any provisions to or changing in any manner or eliminating any
of the provisions of such Agreement or of modifying in any manner any provisions
thereof; provided, however, that if a REMIC election is made for the applicable
Trust, no such amendment shall be made unless the Trustee receives an Opinion of
Counsel, at the expense of the party requesting the change, that such change
will not adversely affect the status of the Trust as a REMIC or cause a tax to
be imposed on the REMIC, and provided further, that no such amendment shall
reduce in any manner the amount of, or delay the timing of, any amounts which
are required to be distributed on any Securities without the consent of the
Holders of 100% of each Class of Securities affected thereby.
Each Agreement may be amended from time to time by the Master
Servicer, The Money Store and the Trustee by written agreement, upon the prior
written consent of the SBA and Security Guaranty Insurer, if any, without the
notice to or consent of the Securityholders, in connection with the substitution
of cash, a letter of credit or any other collateral deposited in a Reserve
Account.
It will not be necessary for the consent of holders to approve the
particular form of any proposed amendment, but it will be sufficient if such
consent shall approve the substance thereof.
THE TRUSTEE
Each Prospectus Supplement will name the Trustee under the related
Agreement. The Agreement will provide that the Trustee may resign at any time,
in which event the Representative will be obligated to appoint a successor
Trustee. The Representative may also remove the Trustee if the Trustee ceases to
be eligible to continue as such under the Agreement, if the Trustee becomes
insolvent or if the Trustee enters into certain business combinations. Any
resignation or removal of the Trustee and appointment of a successor Trustee
will not become effective until acceptance of the appointment by the successor
Trustee.
<PAGE>
CERTAIN LEGAL ASPECTS OF THE LOANS
GENERAL
The following discussion contains summaries, which are general in
nature, of certain legal matters relating to the Loans. Laws and practices
relating to the legal effects and enforcement of mortgages and deeds of trust
vary somewhat from state to state. In general, however, the most significant
applicable legal principles are similar in all states. The following discussion
addresses the more significant legal principles applicable to mortgages and
deeds of trust in all states. It should be noted that some of the Loans may
relate to Mortgaged Properties located in California, which has enacted various
laws, not common to most other states, which impose special limitations on the
remedies available to the holders of mortgages and deeds of trust. These laws,
called "anti-deficiency laws," are discussed below.
NATURE OF THE TRUST ASSETS
The Loans generally will be secured by mortgages, deeds of trust,
security deeds or deeds to secure debt, depending upon the prevailing practice
in the state in which the property subject to the loan is located. A mortgage
creates a lien upon the real property encumbered by the mortgage, which lien is
generally not prior to the lien for real estate taxes and assessments. Priority
between mortgages depends on their terms and generally on the order of recording
with a state or county office. There are two parties to a mortgage, the
mortgagor, who is the borrower and owner of the mortgaged property, and the
mortgagee, who is the lender. The mortgagor delivers to the mortgagee a note or
bond and the mortgage. Although a deed of trust is similar to a mortgage, a deed
of trust formally has three parties, the borrower-property owner called the
trustor (similar to a mortgagor), a lender (similar to a mortgagee) called the
beneficiary, and a third-party grantee called the trustee. Under a deed of
trust, the borrower grants the property, irrevocably until the debt is paid, in
trust, generally with a power of sale, to the trustee to secure payment of the
obligation. A security deed and a deed to secure debt are special types of deeds
which indicate on their face that they are granted to secure an underlying debt.
By executing a security deed or deed to secure debt, the grantor conveys title
to, as opposed to merely creating a lien upon, the subject property to the
grantee until such time as the underlying debt is repaid. The mortgagee's
authority under a mortgage, the trustee's authority under a deed of trust and
the grantee's authority under a security deed or deed to secure debt are
governed by law and, with respect to some deeds of trust, the directions of the
beneficiary.
FORECLOSURE/REPOSSESSION
Foreclosure of a deed of trust or a security deed is generally
accomplished by a non-judicial trustee's sale under a specific provision in the
deed of trust or security deed which authorizes the trustee to sell the property
at public auction upon any default by the borrower under the terms of the note,
deed of trust or security deed. In some states, the trustee must record a notice
of default and send a copy to the borrower-trustor, to any person who has
recorded a request for a copy of any notice of default and notice of sale, to
any successor in interest to the borrower-trustor, to the beneficiary of any
junior deed of trust and to certain other persons. The borrower, or any other
person having a junior encumbrance on the real estate, may, during a
reinstatement period, cure the default by paying the entire amount in arrears
plus the costs and expenses incurred in enforcing the obligations. Before such
non-judicial sales takes place, typically a notice of sale must be posted in a
public place and published during a specific period of time in one or more
newspapers, posted on the property, and sent to parties having an interest of
record in the property.
Foreclosure of a mortgage is generally accomplished by judicial
action. The action is initiated by the service of legal pleadings upon all
parties having an interest in the real property. Delays in completion of the
foreclosure may occasionally result from difficulties in locating necessary
parties. When the mortgagee's right to foreclosure is contested, the legal
proceedings necessary to resolve the issue can be time-consuming. After the
completion of a judicial foreclosure proceeding, the court generally issues a
judgment of foreclosure and appoints a referee or other court officer to conduct
the sale of the property. In general, the borrower, or any other person having a
junior encumbrance on the real estate, may, during a statutorily prescribed
reinstatement period, cure a monetary default by paying the entire amount in
arrears plus other designated costs and expenses incurred in enforcing the
obligation. Generally, state law controls the amount of foreclosure expenses and
costs, including attorney's fees, which may be recovered by a lender. After the
reinstatement period has expired without the default having been cured, the
borrower or junior lienholder no longer has the right to reinstate the loan and
must pay the loan in full to prevent the scheduled foreclosure sale. If the
mortgage is not reinstated, a notice of sale must be posted in a public place
and, in most states, published for a specific period of time in one or more
newspapers. In addition, some state laws require that a copy of the notice of
sale be posted on the property and sent to all parties having an interest in the
real property.
Although foreclosure sales are typically public sales, frequently no
third party purchaser bids in excess of the lender's lien because of the
difficulty of determining the exact status of title to the property, the
possible deterioration of the property during the foreclosure proceedings and a
requirement that the purchaser pay for the property in cash or by cashier's
check. Thus the foreclosing lender often purchases the property from the trustee
or referee for an amount equal to the principal amount outstanding under the
loan, accrued and unpaid interest and the expenses of foreclosure. Thereafter,
the lender will assume the burden of ownership, including obtaining hazard
insurance and making such repairs at its own expense as are necessary to render
the property suitable for sale. The lender will commonly obtain the services of
a real estate broker and pay the broker's commission in connection with the sale
of the property. Depending upon market conditions, the ultimate proceeds of the
sale of the property may not equal the lender's investment in the property.
Courts have imposed general equitable principles upon foreclosure,
which are generally designed to mitigate the legal consequences to the borrower
of the borrower's defaults under the loan documents. Some courts have been faced
with the issue of whether federal or state constitutional provisions reflecting
due process concerns for fair notice require that borrowers under deeds of trust
receive notice longer than that prescribed by statute. For the most part, these
cases have upheld the notice provisions as being reasonable or have found that
the sale by a trustee under a deed of trust does not involve sufficient state
action to afford constitutional protection to the borrower.
In the case of foreclosure on a building which was converted from a
rental building to a building owned by a Cooperative under a non-eviction plan,
some states require that a purchaser at a foreclosure sale take the property
subject to rent control and rent stabilization laws which apply to certain
tenants who elected to remain in the building but who did not purchase shares in
the Cooperative when the building was so converted.
RIGHTS OF REDEMPTION
In some states, after sale pursuant to a deed of trust or foreclosure
of a mortgage, the borrower and foreclosed junior lienors are given a statutory
period in which to redeem the property from the foreclosure sale. In some
states, redemption may occur only upon payment of the entire principal balance
of the loan, accrued interest and expenses of foreclosure. In other states,
redemption may be authorized if the former borrower pays only a portion of the
sums due. The effect of a statutory right of redemption is to diminish the
ability of the lender to sell the foreclosed property. The rights of redemption
would defeat the title of any purchaser from the lender subsequent to
foreclosure or sale under a deed of trust. Consequently, the practical effect of
the redemption right is to force the lender to retain the property and pay the
expenses of ownership until the redemption period has run.
FORECLOSURE IN CALIFORNIA
It is expected that a significant portion of the Loans (by principal
balance) will be originated to businesses located in California. Foreclosure of
a deed of trust in California may be effected by a judicial or nonjudicial
foreclosure proceeding, with the choice of remedy depending on the
circumstances. Where the likelihood of a large recoverable deficiency is
present, a judicial foreclosure action may be preferred. The discussion above
under the heading "Foreclosure/Repossession" and "Rights of Redemption" are
generally accurate with respect to foreclosure of a deed of trust in California.
Generally, upon the completion of a non-judicial foreclosure sale in
California, the foreclosing lender is prohibited from obtaining a deficiency
judgment against the borrower. A deficiency judgment is available following a
judicial foreclosure, subject to the limitation of the excess of the outstanding
debt over the fair market value of the property at the time of sale, and in no
event may the deficiency exceed the difference between the outstanding debt and
the purchase price at the foreclosure sale. California law also requires the
deed of trust beneficiary to exhaust all real property security in a single
action (i.e. in a judicial foreclosure) before a deficiency judgment may be
sought against the borrower.
ANTI-DEFICIENCY LEGISLATION AND OTHER LIMITATIONS ON LENDERS
Certain states (including California) have imposed statutory
prohibitions which limit the remedies of a beneficiary under a deed of trust or
a mortgagee under a mortgage. In some states, statutes limit the right of the
beneficiary or mortgagee to obtain a deficiency judgment against the borrower
following foreclosure or sale under a deed of trust. A deficiency judgment would
be a personal judgment against the former borrower equal in most cases to the
difference between the amount due to the lender and the net amount realized upon
any sale of the real property sold at the foreclosure sale. Other statutes
require the beneficiary or mortgagee to exhaust the security afforded under a
deed of trust or mortgage by foreclosure in an attempt to satisfy the full debt
before bringing a personal action against the borrower. Finally, other statutory
provisions limit any deficiency judgment against the former borrower following a
judicial sale to the excess of the outstanding debt over the fair market value
of the property at the time of the sale. The purpose of these statutes is
generally to prevent a beneficiary or a mortgagee from obtaining a large
deficiency judgment against the former borrower as a result of low or no bids at
the foreclosure sale. As a result of these prohibitions, it is anticipated that
in many instances the Master Servicer will not seek deficiency judgments against
defaulting mortgagors.
In addition to laws limiting or prohibiting deficiency judgments,
numerous other statutory provisions, including the federal bankruptcy laws and
state laws affording relief to debtors, may interfere with or affect the ability
of the secured mortgage lender to realize upon collateral and/or enforce a
deficiency judgment. For example, with respect to federal bankruptcy law, a
court with federal bankruptcy jurisdiction may permit a debtor through his
Chapter 11 or Chapter 13 rehabilitative plan to cure a monetary default in
respect of a mortgage loan on a debtor's residence by paying arrearages within a
reasonable time period and reinstating the original mortgage loan payment
schedule even though the lender accelerated the mortgage loan and final judgment
of foreclosure had been entered in state court provided no sale of the residence
had yet occurred prior to the filing of the debtor's petition. Some courts with
federal bankruptcy jurisdiction have approved plans, based on the particular
facts of the reorganization case, that effected the curing of a mortgage loan
default by paying arrearages over a number of years.
Courts with federal bankruptcy jurisdiction have also indicated that
the terms of a mortgage loan secured by property of the debtor may be modified.
These courts have suggested that such modifications may include reducing the
amount of each monthly payment, changing the rate of interest, altering the
repayment schedule, and reducing the lender's security interest to the value of
the property, thus leaving the lender a general unsecured creditor for the
difference between the value of the property and the outstanding balance of the
loan.
Federal and local real estate and tax laws provide priority to certain
tax liens over the lien of the mortgage. In addition, substantive requirements
are imposed upon mortgage lenders in connection with the origination and the
servicing of mortgage loans by numerous federal and some state consumer
protection laws. These laws include the federal Truth-in-Lending Act, Real
Estate Settlement Procedures Act, Equal Credit Opportunity Act, Fair Credit
Billing Act, Fair Credit Reporting Act, and related statutes. These federal laws
impose specific statutory liabilities upon lenders who originate mortgage loans
and who fail to comply with the provisions of the applicable laws. In some
cases, this liability may affect assignees of the mortgage loans.
ENFORCEABILITY OF CERTAIN PROVISIONS
Some courts have imposed general equitable principles to limit the
remedies available in connection with foreclosure. These equitable principles
are generally designed to relieve the borrower from the legal effect of his
defaults under the loan documents. For example, some courts have required that
the lender undertake affirmative and expensive actions to determine the causes
for the borrower's default and the likelihood that the borrower will be able to
reinstate the loan. In some cases, courts have substituted their judgment for
the lenders' judgment and have required that lenders reinstate loans or recast
payment schedules in order to accommodate borrowers who are suffering from
temporary financial disability. In other cases, courts have limited the right of
the lenders to foreclose if the default under the mortgage instrument or deed of
trust is not monetary, such as the borrower's failure to maintain adequately the
property or the borrower's execution of a second mortgage or deed of trust
affecting the property. Finally, some courts have been willing to relieve a
borrower from the consequences of the default if the borrower has not received
adequate notice of the default.
ENVIRONMENTAL CONSIDERATIONS
Environmental conditions may diminish the value of the Trust Assets
and give rise to liability of various parties. There are many federal and state
environmental laws concerning hazardous waste, hazardous substances, gasoline,
radon and other materials which may affect the property securing the Trust
Assets. For example, under the federal Comprehensive Environmental Response
Compensation and Liability Act, as amended, and possibly under state law in
certain states, a secured party which takes a deed in lieu of foreclosure or
purchases a mortgaged property at a foreclosure sale may become liable in
certain circumstances for the costs of a remedial action ("Cleanup Costs") if
hazardous wastes or hazardous substances have been released or disposed of on
the property. Such Cleanup Costs may be substantial. It is possible that such
costs could become a liability of a Trust and reduce the amounts otherwise
distributable to the Securityholders if a Mortgaged Property securing a Loan
became the property of such Trust in certain circumstances and if such Cleanup
Costs were incurred. Moreover, certain states by statute impose a lien for any
Cleanup Costs incurred by such state on the property that is the subject of such
Cleanup Costs (a "Superlien"). All subsequent liens on such property are
subordinated to such Superlien and, in some states, even prior recorded liens
are subordinated to such Superliens. In the latter states, the security interest
of the Trustee in a property that is subject to such a Superlien could be
adversely affected.
FEDERAL INCOME TAX CONSEQUENCES
In the opinion of Stroock & Stroock & Lavan LLP, special federal tax
counsel ("Federal Tax Counsel"), the following are the material federal income
tax consequences of the purchase, ownership and disposition of the Certificates
or Notes offered hereby. The discussion, and the opinions referred to below, are
based on laws, regulations, rulings and decisions now in effect (or, in the case
of certain regulations, proposed), all of which are subject to change or
possibly differing interpretations. Because tax consequences may vary based upon
the status or tax attributes of the owner of a Certificate, prospective
investors should consult their own tax advisors in determining the federal,
state, local and other tax consequences to them of the purchase, ownership and
disposition of Certificates or Notes. For purposes of this tax discussion
(except with respect to information reporting, or where the context indicates
otherwise), the terms "Certificateholder" and "holder" mean the beneficial owner
of a Certificate.
REMIC ELECTIONS
Under the Internal Revenue Code of 1986, as amended (the "Code"), an
election may be made with respect to each Trust related to a series of
Certificates to treat such Trust or certain assets of such Trust as a "real
estate mortgage investment conduit" ("REMIC"). The Prospectus Supplement for
each series of Certificates will indicate whether a REMIC election will be made
with respect to the related Trust. In addition, if the related Prospectus
Supplement so provides, the transaction documents for a Trust may provide that
an election will be made on or after September 1, 1997 to qualify such Trust as
a Financial Asset Securitization Investment Trust ("FASIT") pursuant to new
provisions of the Code which will be effective as of such date. To the extent
provided in the Prospectus Supplement for a series, Certificateholders may also
have the benefit of a Reserve Fund and of certain agreements (each, a "Yield
Supplement Agreement") under which payment will be made from the Reserve Fund in
the event that interest accrued on the Loans at their Mortgage Interest Rates is
insufficient to pay interest on the Certificates of such Series (a "Basis Risk
Shortfall"). If a REMIC election is to be made, the Prospectus Supplement will
designate the Certificates of such series as "regular interests" ("REMIC Regular
Certificates") in the REMIC (within the meaning of Section 860G(a)(1) of the
Code) or as the "residual interest" ("REMIC Residual Certificates") in the REMIC
(within the meaning of Section 860G(a)(2) of the Code). The terms "REMIC
Certificates" and "Non-REMIC Certificates" denote, respectively, Certificates
of a series with respect to which a REMIC election will, or will not, be made.
REMIC CERTIFICATES
With respect to each series of REMIC Certificates, the Trustee will
agree in the Agreement to elect to treat the related Trust or certain assets of
such Trust as a REMIC. Qualification as a REMIC requires ongoing compliance with
certain conditions. Upon the issuance of each series of REMIC Certificates,
Federal Tax Counsel will deliver its opinion generally to the effect that, with
respect to each series of REMIC Certificates for which a REMIC election is to be
made, under then existing law and assuming a proper and timely REMIC election
and ongoing compliance with the provisions of the Agreement and applicable
provisions of the Code and applicable Treasury regulations and rulings, the
related Trust or certain assets of such Trust will be a REMIC and the REMIC
Certificates will be considered to evidence ownership of "regular interests" or
"residual interests" within the meaning of the REMIC provisions of the Code.
To the extent provided in the Prospectus Supplement for a series,
REMIC Regular Certificateholders who are entitled to payments from the Reserve
Fund in the event of a Basis Risk Shortfall will be required to allocate their
purchase price between their beneficial ownership interests in the related REMIC
regular interests and Yield Supplement Agreements, and will be required to
report their income realized with respect to each, calculated taking into
account such allocation. In general, such allocation would be based on the
respective fair market values of the REMIC regular interests and the related
Yield Supplement Agreements on the date of purchase of the related Certificate.
No representation is or will be made as to the fair market value of the Yield
Supplement Agreements or the relative values of the REMIC regular interests and
the Yield Supplement Agreements, upon initial issuance of the related REMIC
Regular Certificates or at any time thereafter. REMIC Regular Certificateholders
are advised to consult their own tax advisors concerning the determination of
such fair market values. Under the Agreement, holders of applicable classes of
REMIC Regular Certificates will agree that, for federal income tax purposes,
they will be treated as owners of the respective class of regular interests and
of the corresponding Yield Supplement Agreement.
Status of REMIC Certificates. The REMIC Certificates will be "real
estate assets" for purposes of Section 856(c)(5)(A) of the Code and assets
described in Section 7701(a)(19)(C) of the Code (assets qualifying under one or
both of those sections, applying each section separately, "qualifying assets")
to the extent that the REMIC's assets are qualifying assets, but not to the
extent that the REMIC's assets consist of Yield Supplement Agreements. However,
if at least 95 percent of the REMIC's assets are qualifying assets, then 100
percent of the REMIC Certificates will be qualifying assets. Similarly, income
on the REMIC Certificates will be treated as "interest on obligations secured by
mortgages on real property" within the meaning of Section 856(c)(3)(B) of the
Code, subject to the limitations of the preceding two sentences. In addition to
Trust Assets, the REMIC's assets will include payments on Trust Assets held
pending distribution to holders of REMIC Certificates, amounts in reserve
accounts (if any), other credit enhancements (if any) and possibly buydown funds
("Buydown Funds"). The Trust Assets may be qualifying assets under the foregoing
sections of the Code. However, Trust Assets that are not secured by residential
real property or real property used primarily for church purposes may not
constitute qualifying assets under Section 7701(a)(19)(C)(v) of the Code. In
addition, to the extent that the principal amount of a Trust Asset exceeds the
value of the property securing the Trust Asset, it is unclear and Federal Tax
Counsel is unable to opine whether the loans will be qualifying assets. The
regulations under Sections 860A through 860G of the Code (the "REMIC
Regulations") treat credit enhancements as part of the mortgage or pool of
mortgages to which they relate, and therefore credit enhancements generally
should be qualifying assets. Regulations issued in conjunction with the REMIC
Regulations provide that amounts paid on Trust Assets and held pending
distribution to holders of Certificates ("cash flow investments") will be
treated as qualifying assets. It is unclear whether reserve funds or Buydown
Funds would also constitute qualifying assets. The Prospectus Supplement for
each series will indicate (if applicable) that it has Buydown Funds.
TIERED REMIC STRUCTURES
For certain series of Certificates, two or more separate elections may
be made to treat designated portions of the related Trust as REMICs ("Tiered
REMICs") for federal income tax purposes. Upon the issuance of any such series
of Certificates, Federal Tax Counsel will deliver its opinion generally to the
effect that, assuming compliance with all provisions of the related Pooling and
Servicing Agreement and applicable provisions of the Code and applicable
Treasury regulations and rulings, the Tiered REMICs will each qualify under then
existing law as a REMIC and the REMIC Certificates issued by the Tiered REMICs,
respectively, will be considered to evidence ownership of "regular interests" or
"residual interests" in the related REMIC within the meaning of the REMIC
provisions of the Code.
Solely for purposes of determining whether the REMIC Certificates will
be "real estate assets" within the meaning of Section 856(c)(5)(A) of the Code,
and assets described in Section 7701(a)(19)(C) of the Code, and whether the
income on such Certificates is interest described in Section 856(c)(3)(B) of the
Code, the Tiered REMICs will be treated as one REMIC.
REMIC REGULAR CERTIFICATES
Current Income on REMIC Regular Certificates--General. Except as
otherwise indicated herein, the REMIC Regular Certificates will be treated for
federal income tax purposes (but not necessarily for accounting or other
purposes) as debt instruments that are issued by the REMIC on the date of
issuance of the REMIC Regular Certificates and not as ownership interests in the
REMIC or the REMIC's assets. Holders of REMIC Regular Certificates who would
otherwise report income under a cash method of accounting will be required to
report income with respect to REMIC Regular Certificates under an accrual
method.
Payments of interest on REMIC Regular Certificates may be based on a
fixed rate, a variable rate as permitted by the REMIC Regulations, or may
consist of a specified portion of the interest payments on qualified mortgages
where such portion does not vary during the period the REMIC Regular Certificate
is outstanding. The definition of a variable rate for purposes of the REMIC
Regulations is based on the definition of a qualified floating rate for purposes
of the rules governing original issue discount set forth in Sections 1271
through 1275 of the Code and the regulations thereunder (the "OID Regulations")
with certain modifications and permissible variations. See "REMIC Regular
Certificates-Current Income on REMIC Regular Certificates--Original Issue
Discount--Variable Rate REMIC Regular Certificates," below, for a discussion of
the definition of a qualified floating rate for purposes of the OID Regulations.
In contrast to the OID Regulations, for purposes of the REMIC Regulations, a
qualified floating rate does not include any multiple of a qualified floating
rate (also excluding multiples of qualified floating rates that themselves would
constitute qualified floating rates under the OID Regulations), and the
characterization of a variable rate that is subject to a cap, floor or similar
restriction as a qualified floating rate for purposes of the REMIC Regulations
will not depend upon the OID Regulations relating to caps, floors, and similar
restrictions. See "REMIC Regular Certificates-Current Income on REMIC Regular
Certificates--Original Issue Discount--Variable Rate REMIC Regular
Certificates," below, for a discussion of the OID Regulations relating to caps,
floors and similar restrictions. A qualified floating rate, as defined above for
purposes of the REMIC Regulations (a "REMIC qualified floating rate"), qualifies
as a variable rate for purposes of the REMIC Regulations if such REMIC qualified
floating rate is set at a "current rate" as defined in the OID Regulations. In
addition, a rate equal to the highest, lowest or an average of two or more REMIC
qualified floating rates qualifies as a variable rate for REMIC purposes. A
REMIC Regular Certificate also may have a variable rate based on a weighted
average of the interest rates on some or all of the qualified mortgages held by
the REMIC where each qualified mortgage taken into account has a fixed rate or a
variable rate that is permissible under the REMIC Regulations. Further, a REMIC
Regular Certificate may have a rate that is the product of a REMIC qualified
floating rate or a weighted average rate and a fixed multiplier, is a constant
number of basis points more or less than a REMIC qualified floating rate or a
weighted average rate, or is the product, plus or minus a constant number of
basis points, of a REMIC qualified floating rate or a weighted average rate and
a fixed multiplier. An otherwise permissible variable rate for a REMIC Regular
Certificate, described above, will not lose its character as such because it is
subject to a floor or a cap, including a "funds available cap" as that term is
defined in the REMIC Regulations. Lastly, a REMIC Regular Certificate will be
considered as having a permissible variable rate if it has a fixed or otherwise
permissible variable rate during one or more payment or accrual periods and
different fixed or otherwise permissible variable rates during other payment or
accrual periods.
Original Issue Discount. REMIC Regular Certificates of certain series
may be issued with "original issue discount" within the meaning of Section
1273(a) of the Code. Holders of REMIC Regular Certificates issued with original
issue discount generally must include original issue discount in gross income
for federal income tax purposes as it accrues, in advance of receipt of the cash
attributable to such income, under a method that takes account of the
compounding of interest. The Code requires that information with respect to the
original issue discount accruing on any REMIC Regular Certificate be reported
periodically to the Internal Revenue Service and to certain categories of
holders of such REMIC Regular Certificates.
Each Trust will report original issue discount, if any, to the holders
of REMIC Regular Certificates based on the OID Regulations. OID Regulations
concerning contingent payment debt instruments do not apply to the REMIC Regular
Certificates.
The OID Regulations provide that, in the case of a debt instrument
such as a REMIC Regular Certificate, (i) the amount and rate of accrual of
original issue discount will be calculated based on a reasonable assumed
prepayment rate (the "Prepayment Assumption"), and (ii) adjustments will be made
in the amount and rate of accrual of such discount to reflect differences
between the actual prepayment rate and the Prepayment Assumption. The method for
determining the appropriate assumed prepayment rate will eventually be set forth
in Treasury regulations, but those regulations have not yet been issued. The
applicable legislative history indicates, however, that such regulations will
provide that the assumed prepayment rate for securities such as the REMIC
Regular Certificates will be the rate used in pricing the initial offering of
the securities. The Prospectus Supplement for each series of REMIC Regular
Certificates will specify the Prepayment Assumption, but no representation is
made that the REMIC Regular Certificates will, in fact, prepay at a rate based
on the Prepayment Assumption or at any other rate.
In general, a REMIC Regular Certificate will be considered to be
issued with original issue discount if its stated redemption price at maturity
exceeds its issue price. Except as discussed below under "Payment Lag REMIC
Regular Certificates; Initial Period Considerations" and "Qualified Stated
Interest," and in the case of certain Variable Rate REMIC Regular Certificates
(as defined below) and accrual certificates, the stated redemption price at
maturity of a REMIC Regular Certificate is its principal amount. The issue price
of a REMIC Regular Certificate is the initial offering price to the public
(excluding bond houses and brokers) at which a substantial amount of the class
of REMIC Regular Certificates was sold. The issue price will be reduced if any
portion of such price is allocable to a related Yield Supplement Agreement.
Notwithstanding the general definition of original issue discount, such discount
will be considered to be zero for any REMIC Regular Certificate on which such
discount is less than 0.25% of its stated redemption price at maturity
multiplied by its weighted average life. The weighted average life of a REMIC
Regular Certificate apparently is computed for purposes of this de minimis rule
as the sum, for all distributions included in the stated redemption price at
maturity of the REMIC Regular Certificate, of the amounts determined by
multiplying (i) the number of complete years (rounding down for partial years)
from the Closing Date to the date on which each such distribution is expected to
be made, determined under the Prepayment Assumption, by (ii) a fraction, the
numerator of which is the amount of such distribution and the denominator of
which is the REMIC Regular Certificate's stated redemption price at maturity.
The OID Regulations provide that holders will include any de minimis original
issue discount ratably as payments of stated principal are made on the REMIC
Regular Certificates.
The holder of a REMIC Regular Certificate issued with original issue
discount must include in gross income the sum of the "daily portions" of such
original issue discount for each day during its taxable year on which it held
such REMIC Regular Certificate. In the case of an original holder of a REMIC
Regular Certificate, the daily portions of original issue discount are
determined first by calculating the portion of the original issue discount that
accrued during each period (an "accrual period") that begins on the day
following a Remittance Date (or in the case of the first such period, begins on
the Closing Date) and ends on the next succeeding Remittance Date. The original
issue discount accruing during each accrual period is then allocated ratably to
each day during such period to determine the daily portion of original issue
discount for that day.
The portion of the original issue discount that accrues in any accrual
period will equal the excess, if any, of (i) the sum of (A) the present value,
as of the end of the accrual period, of all of the distributions to be made on
the REMIC Regular Certificate, if any, in future periods and (B) the
distributions made on the REMIC Regular Certificate during the accrual period
that are included in such REMIC Regular Certificate's stated redemption price at
maturity, over (ii) the adjusted issue price of such REMIC Regular Certificate
at the beginning of the accrual period. The present value of the remaining
distributions referred to in the preceding sentence will be calculated (i)
assuming that the REMIC Regular Certificates will be prepaid in future periods
at a rate computed in accordance with the Prepayment Assumption and (ii) using a
discount rate equal to the original yield to maturity of the REMIC Regular
Certificates. For these purposes, the original yield to maturity of the REMIC
Regular Certificates will be calculated based on their issue price and assuming
that the REMIC Regular Certificates will be prepaid in accordance with the
Prepayment Assumption. The adjusted issue price of a REMIC Regular Certificate
at the beginning of any accrual period will equal the issue price of such REMIC
Regular Certificate, increased by the portion of the original issue discount
that has accrued during prior accrual periods, and reduced by the amount of any
distributions made on such REMIC Regular Certificate in prior accrual periods
that were included in such REMIC Regular Certificate's stated redemption price
at maturity.
The daily portions of original issue discount may increase or decrease
depending on the extent to which the actual rate of prepayments diverges from
the Prepayment Assumption. If original issue discount accruing during any
accrual period computed as described above is negative, it is likely that a
holder will be entitled to offset such amount only against positive original
issue discount accruing on such REMIC Regular Certificate in future accrual
periods. Although Federal Tax Counsel is unable to opine with respect to this
matter, such a holder may be entitled to deduct a loss to the extent that its
remaining basis would exceed the maximum amount of future payments to which such
holder is entitled. It is unclear whether the Prepayment Assumption is taken
into account for this purpose.
A subsequent holder that purchases a REMIC Regular Certificate issued
with original issue discount at a cost less than its remaining stated redemption
price at maturity will also generally be required to include in gross income,
for each day on which it holds such REMIC Regular Certificate, the daily
portions of original issue discount with respect to the REMIC Regular
Certificate, calculated as described above. However, if (i) the excess of the
remaining stated redemption price at maturity over such cost is less than (ii)
the aggregate amount of such daily portions for all days after the date of
purchase until final retirement of such REMIC Regular Certificate, then such
daily portions will be reduced proportionately in determining the income of such
holder.
Qualified Stated Interest. Interest payable on a REMIC Regular
Certificate which qualifies as "qualified stated interest" for purposes of the
OID Regulations will not be includible in the stated redemption price at
maturity of the REMIC Regular Certificate. Accordingly, if the interest on a
REMIC Regular Certificate does not constitute "qualified stated interest," the
REMIC Regular Certificate will have original issue discount. Interest payments
will not qualify as qualified stated interest unless the interest payments are
"unconditionally payable." The OID Regulations state that interest is
unconditionally payable if reasonable legal remedies exist to compel timely
payment, or the debt instrument otherwise provides terms and conditions that
make the likelihood of late payment (other than a late payment that occurs
within a reasonable grace period) or nonpayment of interest a remote
contingency, as defined in the OID Regulations. Any terms or conditions that do
not reflect arm's length dealing or that the holder does not intend to enforce
are not considered. It is unclear whether the terms and conditions of the Trust
Assets underlying the REMIC Regular Certificates or the terms and conditions of
the REMIC Regular Certificates are considered when determining whether the
likelihood of late payment or nonpayment of interest is a remote contingency.
Accordingly, Federal Tax Counsel is unable to opine whether interest payments on
REMIC Regular Certificates that otherwise would not be treated as having
original issue discount would be considered to have original issue discount
because there are not reasonable remedies to compel timely payment of interest
or terms or conditions that would make the likelihood of late payment or
nonpayment of interest a remote contingency.
Premium. A purchaser of a REMIC Regular Certificate that purchases
such REMIC Regular Certificate at a cost greater than its remaining stated
redemption price at maturity will be considered to have purchased such REMIC
Regular Certificate at a premium, and may, under Section 171 of the Code, elect
to amortize such premium under a constant yield method over the life of the
REMIC Regular Certificate. The Prepayment Assumption is probably taken into
account in determining the life of the REMIC Regular Certificate for this
purpose. Except as provided in regulations, amortizable premium will be treated
as an offset to interest income on the REMIC Regular Certificate.
Payment Lag REMIC Regular Certificates; Initial Period Considerations.
Certain REMIC Regular Certificates will provide for distributions of interest
based on a period that is the same length as the interval between Remittance
Dates but ends prior to each Remittance Date. Any interest that accrues prior to
the Closing Date may be treated under the OID Regulations either (i) as part of
the issue price and the stated redemption price at maturity of the REMIC Regular
Certificates or (ii) as not included in the issue price or the stated redemption
price. The OID Regulations provide a special application of the de minimis rule
for debt instruments with long first accrual periods where the interest payable
for the first period is at a rate which is effectively less than that which
applies in all other periods. In such cases, for the sole purpose of determining
whether original issue discount is de minimis, the OID Regulations provide that
the stated redemption price is equal to the instrument's issue price plus the
greater of the amount of foregone interest or the excess (if any) of the
instrument's stated principal amount over its issue price.
Variable Rate REMIC Regular Certificates. Under the OID Regulations,
REMIC Regular Certificates paying interest at a variable rate (a "Variable Rate
REMIC Regular Certificate") are subject to special rules. A Variable Rate REMIC
Regular Certificate will qualify as a "variable rate debt instrument" if (i) its
issue price does not exceed the total noncontingent principal payments due under
the Variable Rate REMIC Regular Certificate by more than a specified de minimis
amount, (ii) it provides for stated interest, paid or compounded at least
annually, at (a) one or more qualified floating rates, (b) a single fixed rate
and one or more qualified floating rates, (c) a single objective rate or (d) a
single fixed rate and a single objective rate that is a qualified inverse
floating rate, and (iii) it does not provide for any principal payments that are
contingent, as defined in the OID Regulations, except as provided in (i) above.
Because the OID Regulations relating to contingent payment debt instruments do
not apply to REMIC regular interests, principal payments on the REMIC Regular
Certificates should not be considered contingent for this purpose.
A "qualified floating rate" is any variable rate where variations in
the value of such rate can reasonably be expected to measure contemporaneous
variations in the cost of newly borrowed funds in the currency in which the
Variable Rate REMIC Regular Certificate is denominated. A multiple of a
qualified floating rate will generally not itself constitute a qualified
floating rate for purposes of the OID Regulations. However, a variable rate
equal to (i) the product of a qualified floating rate and a fixed multiple that
is greater than 0.65 but not more than 1.35 or (ii) the product of a qualified
floating rate and a fixed multiple that is greater than 0.65 but not more than
1.35, increased or decreased by a fixed rate will constitute a qualified
floating rate for purposes of the OID Regulations. In addition, under the OID
Regulations, two or more qualified floating rates that can reasonably be
expected to have approximately the same values throughout the term of the
Variable Rate REMIC Regular Certificate will be treated as a single qualified
floating rate (a "Presumed Single Qualified Floating Rate"). Two or more
qualified floating rates with values within 25 basis points of each other as
determined on the Variable Rate REMIC Regular Certificate's issue date will be
conclusively presumed to be a Presumed Single Qualified Floating Rate.
Notwithstanding the foregoing, a variable rate that would otherwise constitute a
qualified floating rate but which is subject to one or more restrictions such as
a cap or floor, will not be a qualified floating rate for purposes of the OID
Regulations unless the restriction is fixed throughout the term of the Variable
Rate REMIC Regular Certificate or the restriction will not significantly affect
the yield of the Variable Rate REMIC Regular Certificate.
An "objective rate" is a rate that is not itself a qualified floating
rate but which is determined using a single fixed formula and which is based
upon objective financial or economic information. The OID Regulations also
provide that other variable rates may be treated as objective rates if so
designated by the Internal Revenue Service in the future. Despite the foregoing,
a variable rate of interest on a Variable Rate REMIC Regular Certificate will
not constitute an objective rate if it is reasonably expected that the average
value of such rate during the first half of the Variable Rate REMIC Regular
Certificate's term will be either significantly less than or significantly
greater than the average value of the rate during the final half of the Variable
Rate REMIC Regular Certificate's term. Further, an objective rate does not
include a rate that is based on information that is within the control of or
unique to the circumstances of the issuer or a party related to the issuer. An
objective rate will qualify as a "qualified inverse floating rate" if such rate
is equal to a fixed rate minus a qualified floating rate and variations in the
rate can reasonably be expected to inversely reflect contemporaneous variations
in the qualified floating rate. The OID Regulations also provide that if a
Variable Rate REMIC Regular Certificate provides for stated interest at a fixed
rate for an initial period of less than one year followed by a variable rate
that is either a qualified floating rate or an objective rate and if the
variable rate on the Variable Rate REMIC Regular Certificate's issue date is
intended to approximate the fixed rate, then the fixed rate and the variable
rate together will constitute either a single qualified floating rate or
objective rate, as the case may be (a "Presumed Single Variable Rate"). If the
value of the variable rate and the initial fixed rate are within 25 basis points
of each other as determined on the Variable Rate REMIC Regular Certificate's
issue date, the variable rate will be conclusively presumed to approximate the
fixed rate.
For Variable Rate REMIC Regular Certificates that qualify as a
"variable rate debt instrument" under the OID Regulations and provide for
interest at either a single qualified floating rate, a single objective rate, a
Presumed Single Qualified Floating Rate or a Presumed Single Variable Rate
throughout the term (a "Single Variable Rate REMIC Regular Certificate"),
original issue discount is computed as described in "REMIC Regular Certificates-
Current Income on REMIC Regular Certificates--Original Issue Discount" based on
the following: (i) stated interest on the Single Variable Rate REMIC Regular
Certificate which is unconditionally payable in cash or property (other than
debt instruments of the issuer) at least annually will constitute qualified
stated interest; (ii) by assuming that the variable rate on the Single Variable
Rate REMIC Certificate is a fixed rate equal to: (a) in the case of a Single
Variable Rate REMIC Regular Certificate with a qualified floating rate or a
qualified inverse floating rate, the value of, as of the issue date, of the
qualified floating rate or the qualified inverse floating rate or (b) in the
case of a Single Variable Rate REMIC Regular Certificate with an objective rate
(other than a qualified inverse floating rate), a fixed rate which reflects the
reasonably expected yield for such Single Variable Rate REMIC Regular
Certificate; and (iii) the qualified stated interest allocable to an accrual
period is increased (or decreased) if the interest actually paid during an
accrual period exceeds (or is less than) the interest assumed to be paid under
the assumed fixed rate described in (ii) above.
In general, any Variable Rate REMIC Regular Certificate other than a
Single Variable Rate REMIC Regular Certificate (a "Multiple Variable Rate REMIC
Regular Certificate") that qualifies as a "variable rate debt instrument" will
be converted into an "equivalent" fixed rate debt instrument for purposes of
determining the amount and accrual of original issue discount and qualified
stated interest on the Multiple Variable Rate REMIC Regular Certificate. The OID
Regulations generally require that such a Multiple Variable Rate REMIC Regular
Certificate be converted into an "equivalent" fixed rate debt instrument by
substituting any qualified floating rate or qualified inverse floating rate
provided for under the terms of the Multiple Variable Rate REMIC Regular
Certificate with a fixed rate equal to the value of the qualified floating rate
or qualified inverse floating rate, as the case may be, as of the Multiple
Variable Rate REMIC Regular Certificate's issue date. Any objective rate (other
than a qualified inverse floating rate) provided for under the terms of the
Multiple Variable Rate REMIC Regular Certificate is converted into a fixed rate
that reflects the yield that is reasonably expected for the Multiple Variable
Rate REMIC Regular Certificate. In the case of a Multiple Variable Rate REMIC
Regular Certificate that qualifies as a "variable rate debt instrument" and
provides for stated interest at a fixed rate in addition to either one or more
qualified floating rates or a qualified inverse floating rate, the fixed rate is
initially converted into a qualified floating rate (or a qualified inverse
floating rate, if the Multiple Variable Rate REMIC Regular Certificate provides
for a qualified inverse floating rate). Under such circumstances, the qualified
floating rate or qualified inverse floating rate that replaces the fixed rate
must be such that the fair market value of the Multiple Variable Rate REMIC
Regular Certificate as of the Multiple Variable Rate REMIC Regular Certificate's
issue date is approximately the same as the fair market value of an otherwise
identical debt instrument that provides for either the qualified floating rate
or qualified inverse floating rate rather than the fixed rate. Subsequent to
converting the fixed rate into either a qualified floating rate or a qualified
inverse floating rate, the Multiple Variable Rate REMIC Regular Certificate is
then converted into an "equivalent" fixed rate debt instrument in the manner
described above.
Once the Multiple Variable Rate REMIC Regular Certificate is converted
into an "equivalent" fixed rate debt instrument pursuant to the foregoing rules,
the amount of original issue discount and qualified stated interest, if any, are
determined for the "equivalent" fixed rate debt instrument by applying the
original issue discount rules to the "equivalent" fixed rate debt instrument in
the manner described in "REMIC Regular Certificates-Current Income on REMIC
Regular Certificates--Original Issue Discount." A Holder of the Multiple
Variable Rate REMIC Regular Certificate will account for such original issue
discount and qualified stated interest as if the Holder held the "equivalent"
fixed rate debt instrument. Each accrual period appropriate adjustments will be
made to the amount of qualified stated interest or original issue discount
assumed to have been accrued or paid with respect to the "equivalent" fixed rate
debt instrument in the event that such amounts differ from the actual amount of
interest accrued or paid on the Multiple Variable Rate REMIC Regular Certificate
during the accrual period.
If a Variable Rate REMIC Regular Certificate does not qualify as a
"variable rate debt instrument" under the OID Regulations, then the Variable
Rate REMIC Regular Certificate would be treated as a contingent payment debt
obligation. Federal Tax Counsel is unable to opine under current law how a
Variable Rate REMIC Regular Certificate would be taxed if such REMIC Regular
Certificate were treated as a contingent payment debt obligation since the OID
Regulations relating to contingent payment debt obligations do not apply to
REMIC regular interests.
Interest-Only REMIC Regular Certificates. The Trust intends to report
income from interest-only classes of REMIC Regular Certificates to the Internal
Revenue Service and to holders of interest-only REMIC Regular Certificates based
on the assumption that the stated redemption price at maturity is equal to the
sum of all payments determined under the Prepayment Assumption. As a result,
such interest-only REMIC Regular Certificates will be treated as having original
issue discount.
Market Discount. A holder that acquires a REMIC Regular Certificate at
a market discount (that is, a discount that exceeds any unaccrued original issue
discount) will recognize gain upon receipt of a principal distribution,
regardless of whether the distribution is scheduled or is a prepayment. In
particular, the REMIC Regular Certificateholder will be required to allocate
that principal distribution first to the portion of the market discount on such
REMIC Regular Certificate that has accrued but has not previously been
includible in income, and will recognize ordinary income to that extent. In
general terms, unless Treasury regulations when issued state otherwise, market
discount on a REMIC Regular Certificate may be treated, at the REMIC
Certificateholder's election, as accruing either (i) under a constant yield
method, taking into account the Prepayment Assumption, or (ii) in proportion to
accruals of original issue discount (or, if there is no original issue discount,
in proportion to payments of interest at the Pass-Through Rate or Interest
Rate).
In addition, a holder may be required to defer deductions for a
portion of the holder's interest expense on any debt incurred or continued to
purchase or carry a REMIC Regular Certificate purchased with market discount.
The deferred portion of any interest deduction would not exceed the portion of
the market discount on the REMIC Regular Certificate that accrues during the
taxable year in which such interest would otherwise be deductible and, in
general, would be deductible when such market discount is included in income
upon receipt of a principal distribution on, or upon the sale of, the REMIC
Regular Certificate. The Code requires that information necessary to compute
accruals of market discount be reported periodically to the Internal Revenue
Service and to certain categories of holders of REMIC Regular Certificates.
Notwithstanding the above rules, market discount on a REMIC Regular
Certificate will be considered to be zero if such discount is less than 0.25% of
the remaining stated redemption price at maturity of such REMIC Regular
Certificate multiplied by its weighted average remaining life. Weighted average
remaining life presumably is calculated in a manner similar to weighted average
life (described above under "Current Income on REMIC Regular
Certificates--Original Issue Discount"), taking into account distributions
(including prepayments) prior to the date of acquisition of such REMIC Regular
Certificate by the subsequent purchaser. If market discount on a REMIC Regular
Certificate is treated as zero under this rule, the actual amount of such
discount must be allocated to the remaining principal distributions on the REMIC
Regular Certificate, and when each such distribution is made, gain equal to the
discount, if any, allocated to the distribution will be recognized.
Election to Treat All Interest Under the Constant Yield Rules. The OID
Regulations provide that all Holders may elect to include in gross income all
interest that accrues on a debt instrument issued after April 4, 1994 by using
the constant yield method. For purposes of this election, interest includes
stated interest, original issue discount, and market discount, as adjusted to
account for any premium. Holders should consult their own tax advisors regarding
the availability or advisability of such an election.
Sales of REMIC Regular Certificates. If a REMIC Regular Certificate is
sold, the seller will recognize gain or loss equal to the difference between the
amount realized on the sale and its adjusted basis in the REMIC Regular
Certificate. A holder's adjusted basis in a REMIC Regular Certificate generally
equals the cost of the REMIC Regular Certificate to the holder, increased by
income reported by the holder with respect to the REMIC Regular Certificate and
reduced (but not below zero) by distributions on the REMIC Regular Certificate
received by the holder and by amortized premium. Except as indicated in the next
two paragraphs, any such gain or loss generally will be capital gain or loss
provided the REMIC Regular Certificate is held as a capital asset.
Gain from the sale of a REMIC Regular Certificate that might otherwise
be capital gain will be treated as ordinary income to the extent that such gain
does not exceed the excess, if any, of (i) the amount that would have been
includible in the seller's income with respect to the REMIC Regular Certificate
had income accrued thereon at a rate equal to 110% of "the applicable Federal
rate" (generally, an average of current yields on Treasury securities),
determined as of the date of purchase of the REMIC Regular Certificate, over
(ii) the amount actually includible in the seller's income. In addition, gain
recognized on the sale of a REMIC Regular Certificate by a seller who purchased
the REMIC Regular Certificate at a market discount would be taxable as ordinary
income in an amount not exceeding the portion of such discount that accrued
during the period the REMIC Regular Certificate was held by such seller, reduced
by any market discount includible in income under the rules described above
under "Current Income on REMIC Regular Certificates--Market Discount."
REMIC Regular Certificates will be "evidences of indebtedness" within
the meaning of Section 582(c)(1) of the Code, so that gain or loss recognized
from a sale of a REMIC Regular Certificate by a bank or other financial
institution to which such section applies would be ordinary income or loss.
Termination. The REMIC will terminate shortly following the REMIC's
receipt of the final payment in respect of the Trust Assets. The last
distribution on a REMIC Regular Certificate should be treated as a payment in
full retirement of a debt instrument.
TAX TREATMENT OF YIELD SUPPLEMENT AGREEMENTS
Whether a REMIC Regular Certificateholder of a series will have a
separate contractual right to payments under a Yield Supplement Agreement, and
the tax treatment of such payments, if any, will be addressed in the related
Prospectus Supplement.
REMIC RESIDUAL CERTIFICATES
Because the REMIC Residual Certificates will be treated as "residual
interests" in the REMIC, each holder of a REMIC Residual Certificate will be
required to take into account its daily portion of the taxable income or net
loss of the REMIC for each day during the calendar year on which it holds its
REMIC Residual Certificate. The daily portion is determined by allocating to
each day in a calendar quarter a ratable portion of the taxable income or net
loss of the REMIC for that quarter and allocating such daily amounts among the
holders on such day in proportion to their holdings. All income or loss of the
REMIC taken into account by a REMIC Residual Certificateholder must be treated
as ordinary income or loss as the case may be. Income from residual interests is
"portfolio income" which cannot be offset by "passive activity losses" in the
hands of individuals or other persons subject to the passive loss rules. The
Code also provides that all residual interests must be issued on the REMIC's
startup day and designated as such. For this purpose, "startup day" means the
day on which the REMIC issues all of its regular and residual interests, and
under the REMIC Regulations may, in the case of a REMIC to which property is
contributed over a period of up to ten consecutive days, be any day designated
by the REMIC within such period.
The taxable income of the REMIC, for purposes of determining the
amounts taken into account by holders of REMIC Residual Certificates, is
determined in the same manner as in the case of an individual, with certain
exceptions. The accrual method of accounting must be used and the taxable year
of the REMIC must be the calendar year. The basis of property contributed to the
REMIC in exchange for regular or residual interests is its fair market value
immediately after the transfer. The REMIC Regulations determine the fair market
value of the contributed property by deeming it equal to the aggregate issue
prices of all regular and residual interests in the REMIC.
A REMIC Regular Certificate will be considered indebtedness of the
REMIC. Market discount on any of the Trust Assets held by the REMIC must be
included in the income of the REMIC as it accrues, rather than being included in
income only upon sale of the Trust Assets or as principal on the Trust Assets is
paid. The REMIC is not entitled to any personal exemptions or to deductions for
taxes paid to foreign countries and U.S. possessions, charitable contributions
or net operating losses, or to certain other deductions to which individuals are
generally entitled. Income or loss in connection with a "prohibited transaction"
is disregarded. See "Prohibited Transactions."
As previously discussed, the timing of recognition of negative
original issue discount, if any, on a REMIC Regular Certificate is uncertain. As
a result, the timing of recognition of the REMIC taxable income related to a
REMIC Residual Certificate is also uncertain. Although Federal Tax Counsel is
unable to opine as to this matter, the related REMIC taxable income may be
recognized when the adjusted issue price of such REMIC Regular Certificate would
exceed the maximum amount of future payments with respect to such REMIC Regular
Certificate. It is unclear whether the Prepayment Assumption is taken into
account for this purpose.
A REMIC Residual Certificate has a tax basis in its holder's hands
that is distinct from the REMIC's basis in its assets. The tax basis of a REMIC
Residual Certificate in its holder's hands will be its cost (i.e., the purchase
price of the REMIC Residual Certificate), and will be reduced (but not below
zero) by the holder's share of cash distributions and losses and increased by
its share of taxable income from the REMIC.
If, in any year, cash distributions to a holder of a REMIC Residual
Certificate exceed its share of the REMIC's taxable income, the excess will
constitute a return of capital to the extent of the holder's basis in its REMIC
Residual Certificate. A return of capital is not treated as income for federal
income tax purposes, but will reduce the tax basis of the holder in its REMIC
Residual Certificate (but not below zero). If a REMIC Residual Certificate's
basis is reduced to zero, any cash distributions with respect to that REMIC
Residual Certificate in any taxable year in excess of its share of the REMIC's
income would be taxable to the holder as gain on the sale or exchange of its
interest in the REMIC.
The losses of the REMIC taken into account by a holder of a REMIC
Residual Certificate in any quarter may not exceed the holder's basis in its
REMIC Residual Certificate. Any excess losses may be carried forward
indefinitely to future quarters subject to the same limitation.
There is no REMIC counterpart to the partnership election under Code
Section 754 to increase or decrease the partnership's basis in its assets by
reference to the adjusted basis to subsequent partners of their partnership
interest. The REMIC Regulations do not provide for a similar election or other
adjustment. Consequently, a subsequent purchaser of a REMIC Residual Certificate
at a premium will not be able to use the premium to reduce his share of the
REMIC's taxable income.
Mismatching of Income and Deductions; Excess Inclusions. The taxable
income recognized by the holder of a REMIC Residual Certificate in any taxable
year will be affected by, among other factors, the relationship between the
timing of recognition of interest and discount income (or deductions for
amortization of premium) with respect to Trust Assets, on the one hand, and the
timing of deductions for interest (including original issue discount) on the
REMIC Regular Certificates, on the other. In the case of multiple classes of
REMIC Regular Certificates issued at different yields, and having different
weighted average lives, taxable income recognized by the holders of REMIC
Residual Certificates may be greater than cash flow in earlier years of the
REMIC (with a corresponding taxable loss or less taxable income than cash flow
in later years). This may result from the fact that interest expense deductions,
expressed as a percentage of the outstanding principal amount of the REMIC
Regular Certificates, will increase over time as the shorter term, lower
yielding classes of REMIC Regular Certificates are paid, whereas interest income
from the Trust Assets may not increase over time as a percentage of the
outstanding principal amount of the Trust Assets.
In the case of Tiered REMICs, the OID Regulations provide that the
regular interests in the REMIC which directly owns the Trust Assets (the "Lower
Tier REMIC") will be treated as a single debt instrument for purposes of the
original issue discount provisions. Therefore, the Trust will calculate the
taxable income of Tiered REMICs by treating the Lower Tier REMIC regular
interests as a single debt instrument.
Any "excess inclusions" with respect to a REMIC Residual Certificate
will be subject to certain special rules. The excess inclusions with respect to
a REMIC Residual Certificate are equal to the excess, if any, of its share of
REMIC taxable income for the quarterly period over the sum of the daily accruals
for such quarterly period. The daily accrual for any day on which the REMIC
Residual Certificate is held is determined by allocating to each day in a
quarter its allocable share of the product of (A) 120% of the long-term
applicable Federal rate (for quarterly compounding) that would have applied to
the REMIC Residual Certificates (if they were debt instruments) on the closing
date under Code Section 1274(d)(1) and (B) the adjusted issue price of such
REMIC Residual Certificates at the beginning of a quarterly period. For this
purpose, the adjusted issue price of such REMIC Residual Certificate at the
beginning of a quarterly period is the issue price of such Certificates plus the
amount of the daily accruals of REMIC taxable income for all prior quarters,
decreased by any distributions made with respect to such Certificates prior to
the beginning of such quarterly period.
The excess inclusions of a REMIC Residual Certificate may not be
offset by other deductions, including net operating loss carryforwards, on a
holder's return.
Provisions governing the relationship between excess inclusions and
the alternative minimum tax provide that (i) the alternative minimum taxable
income of a taxpayer is based on the taxpayer's regular taxable income computed
without regard to the rule that taxable income cannot be less than the amount of
excess inclusions, (ii) the alternative minimum taxable income of a taxpayer for
a taxable year cannot be less than the amount of excess inclusions for that
year, and (iii) the amount of any alternative minimum tax net operating loss is
computed without regard to any excess inclusions. While these provisions are
generally effective for tax years beginning after December 31, 1986, a taxpayer
may elect to have them apply only with respect to tax years beginning after
August 20, 1996.
If the holder of a REMIC Residual Certificate is an organization
subject to the tax on unrelated business income imposed by Code Section 511, the
excess inclusions will be treated as unrelated business taxable income of such
holder for purposes of Code Section 511. In addition, the Code provides that
under Treasury regulations, if a real estate investment trust ("REIT") owns a
REMIC Residual Certificate, to the extent excess inclusions of the REIT exceed
its real estate investment trust taxable income (excluding net capital gains),
the excess inclusions would be allocated among the shareholders of the REIT in
proportion to the dividends received by the shareholders from the REIT. Excess
inclusions derived by regulated investment companies ("RICs"), common trust
funds, and subchapter T cooperatives must be allocated to the shareholders of
such entities using rules similar to those applicable to REITs. The Internal
Revenue Service has not yet adopted or proposed such regulations as to REITs,
RICs, or similar entities. A life insurance company cannot adjust its reserve
with respect to variable contracts to the extent of any excess inclusion, except
as provided in regulations.
The Internal Revenue Service has authority to promulgate regulations
providing that if the aggregate value of the REMIC Residual Certificates is not
considered to be "significant," then the entire share of REMIC taxable income of
a holder of a REMIC Residual Certificate may be treated as excess inclusions
subject to the foregoing limitations. This authority has not been exercised to
date.
The REMIC is subject to tax at a rate of 100 percent on any net income
it derives from "prohibited transactions." In general, "prohibited transaction"
means the disposition of a mortgage asset other than pursuant to specified
exceptions, the receipt of income as compensation for services, the receipt of
income from a source other than a Loan or certain other permitted investments,
or gain from the disposition of an asset representing a temporary investment of
payments on the Trust Assets pending distribution on the REMIC Certificates. In
addition, a tax is imposed on the REMIC equal to 100 percent of the value of
certain property contributed to the REMIC after its "startup day." No REMIC in
which interests are offered hereunder will accept contributions that would cause
it to be subject to such tax. This provision will not affect the REMIC's ability
to accept substitute Loans or to sell defective Loans in accordance with the
Agreement.
A REMIC is subject to a tax (deductible from its income) on any "net
income from foreclosure property" (determined in accordance with Section
857(b)(4)(B) of the Code as if the REMIC were a REIT).
Any tax described in the two preceding paragraphs that may be imposed
on the Trust initially would be borne by the REMIC Residual Certificates in the
related REMIC rather than by the REMIC Regular Certificates, unless otherwise
specified in the Prospectus Supplement.
Dealers' Ability to Mark-to-Market REMIC Residual Certificates.
Treasury regulations provide that all REMIC Residual Certificates acquired on or
after January 4, 1995, and similar interests or arrangements acquired on or
after January 4, 1995 that are determined by the Commissioner to have
substantially the same economic effect as a REMIC Residual Certificate, are not
securities and cannot be marked to market pursuant to Section 475 of the Code.
TRANSFERS OF REMIC RESIDUAL CERTIFICATES
Tax on Disposition of REMIC Residual Certificates. The sale of a REMIC
Residual Certificate by a holder will result in gain or loss equal to the
difference between the amount realized on the sale and the adjusted basis of the
REMIC Residual Certificate.
If the seller of a REMIC Residual Certificate held the REMIC Residual
Certificate as a capital asset, the gain or loss generally will be capital gain
or loss. However, under Code Section 582(c), the sale of a REMIC Residual
Certificate by certain banks and other financial institutions will be considered
a sale of property other than a capital asset, resulting in ordinary income or
loss. Although Federal Tax Counsel is unable to opine with respect to the tax
treatment of a REMIC Residual Certificate that has unrecovered basis after all
funds of the Trust have been distributed, the holder may be entitled to claim a
loss in the amount of the unrecovered basis.
The Code provides that, except as provided in Treasury regulations
(which have not yet been issued), if a holder sells a REMIC Residual Certificate
and acquires the same or other REMIC Residual Certificates, residual interests
in another REMIC, or any similar interests in a "taxable mortgage pool" (as
defined in Section 7701(i) of the Code) during the period beginning six months
before, and ending six months after, the date of such sale, such sale will be
subject to the "wash sale" rules of Section 1091 of the Code. In that event, any
loss realized by the seller on the sale generally will not be currently
deductible.
A tax is imposed on the transfer of any residual interest in a REMIC
to a "disqualified organization." The tax is imposed on the transferor, or,
where the transfer is made through an agent of the disqualified organization, on
the agent. "Disqualified organizations" include for this purpose the United
States, any State or political subdivision thereof, any foreign government, any
international organization or agency or instrumentality of the foregoing (with
an exception for certain taxable instrumentalities of the United States, of a
State or of a political subdivision thereof), any rural electrical and telephone
cooperative, and any tax-exempt entity (other than certain farmers'
cooperatives) not subject to the tax on unrelated business income.
The amount of tax to be paid by the transferor on a transfer to a
disqualified organization is equal to the present value of the total anticipated
excess inclusions with respect to the interest transferred for periods after
such transfer multiplied by the highest corporate rate of tax. The transferor
(or agent, as the case may be) will be relieved of liability so long as the
transferee furnishes an affidavit that it is not a disqualified organization and
the transferor or agent does not have actual knowledge that the affidavit is
false. Under the REMIC Regulations, an affidavit will be sufficient if the
transferee furnishes (A) a social security number, and states under penalties of
perjury that the social security number is that of the transferee, or (B) a
statement under penalties of perjury that it is not a disqualified organization.
Treatment of Payments to a Transferee in Consideration of Transfer of
a REMIC Residual Certificate. The federal income tax consequences of any
consideration paid to a transferee on a transfer of an interest in a REMIC
Residual Certificate are unclear and Federal Tax Counsel is unable to opine with
respect to this issue. The preamble to the REMIC Regulations indicates that the
Internal Revenue Service is considering the tax treatment of these types of
residual interests. A transferee of such an interest should consult its own tax
advisors.
Restrictions on Transfer; Holding by Pass-Through Entities. An entity
cannot qualify as a REMIC absent reasonable arrangements designed to ensure that
(1) residual interests in such entity are not held by disqualified organizations
and (2) information necessary to calculate the tax due on transfers to
disqualified organizations (i.e., a computation of the present value of the
excess inclusions) is made available by the REMIC. The governing instruments of
a Trust will contain provisions designed to ensure the foregoing, and any
transferee of a REMIC Residual Certificate must execute and deliver an affidavit
stating that neither the transferee nor any person for whose account such
transferee is acquiring the REMIC Residual Certificate is a disqualified
organization. In addition, as to the requirement that reasonable arrangements be
made to ensure that disqualified organizations do not hold a residual interest
in the REMIC, the REMIC Regulations require that notice of the prohibition be
provided either through a legend on the certificate that evidences ownership, or
through a conspicuous statement in the prospectus or other offering document
used to offer the residual interest for sale. As to the requirement that
sufficient information be made available to calculate the tax on transfers to
disqualified organizations (or the tax, discussed below, on pass-through
entities, interests in which are held by disqualified organizations), the REMIC
Regulations further require that such information also be provided to the
Internal Revenue Service.
A tax is imposed on "pass-through entities" holding residual interests
where a disqualified organization is a record holder of an interest in the
pass-through entity. "Pass-through entity" is defined for this purpose to
include RICs, REITs, common trust funds, partnerships, trusts, estates, and
subchapter T cooperatives. Except as provided in regulations, nominees holding
interests in a "pass-through entity" for another person will also be treated as
"pass-through entities" for this purpose. The tax is equal to the amount of
excess inclusions allocable to the disqualified organization for the taxable
year multiplied by the highest corporate rate of tax, and is deductible by the
"pass-through entity" against the gross amount of ordinary income of the entity.
The Agreement provides that any attempted transfer of a beneficial or
record interest in a REMIC Residual Certificate will be null and void unless the
proposed transferee provides to the Trustee an affidavit that such transferee is
not a disqualified organization.
Legislation has been introduced which would provide that partners of
certain partnerships having a large number of partners will be treated as
disqualified organizations for purposes of the tax imposed on pass-through
entities if such partnerships hold residual interests in a REMIC. When
applicable, the legislation would disallow 70 percent of a large partnership's
miscellaneous itemized deductions, including deductions for servicing and
guaranty fees and any expenses of the REMIC, although the remaining deductions
would not be subject to the 2 percent floor applicable to individual partners.
See "Deductibility of Trust Expenses" below. No prediction can be made regarding
whether such legislation will be enacted.
The REMIC Regulations provide that a transfer of a "noneconomic
residual interest" will be disregarded for all federal income tax purposes
unless impeding the assessment or collection of tax was not a significant
purpose of the transfer. A residual interest will be treated as a "noneconomic
residual interest" unless, at the time of the transfer (1) the present value of
the expected future distributions on the residual interest at least equals the
product of (x) the present value of all anticipated excess inclusions with
respect to the residual interest and (y) the highest corporate tax rate and (2)
the transferor reasonably expects that for each anticipated excess inclusion,
the transferee will receive distributions from the REMIC, at or after the time
at which taxes on such excess inclusion accrue, sufficient to pay the taxes
thereon. A significant purpose to impede the assessment or collection of tax
exists if the transferor, at the time of the transfer, either knew or should
have known (had "improper knowledge") that the transferee would be unwilling or
unable to pay taxes due on its share of the taxable income of the REMIC. A
transferor will be presumed not to have improper knowledge if (i) the transferor
conducts, at the time of the transfer, a reasonable investigation of the
financial condition of the transferee and, as a result of the investigation, the
transferor finds that the transferee has historically paid its debts as they
came due and finds no significant evidence to indicate that the transferee will
not continue to pay its debts as they come due in the future, and (ii) the
transferee represents to the transferor that (A) the transferee understands that
it might incur tax liabilities in excess of any cash received with respect to
the residual interest and (B) the transferee intends to pay the taxes associated
with owning the residual interest as they come due. A different formulation of
this rule applies to transfers of REMIC Residual Certificates by or to foreign
transferees. See "Foreign Investors" below.
DEDUCTIBILITY OF TRUST EXPENSES
A holder that is an individual, estate or trust will be subject to the
limitation with respect to certain itemized deductions described in Code Section
67, to the extent that such deductions, in the aggregate, do not exceed two
percent of the holder's adjusted gross income, and such holder may not be able
to deduct such fees and expenses to any extent in computing such holder's
alternative minimum tax liability. In addition, the amount of itemized
deductions otherwise allowable for the taxable year for an individual whose
adjusted gross income exceeds the applicable amount (which amount will be
adjusted for inflation for taxable years beginning after 1990) will be reduced
by the lesser of (i) 3 percent of the excess of adjusted gross income over the
applicable amount, or (ii) 80 percent of the amount of itemized deductions
otherwise allowable for such taxable year. Such deductions will include
servicing, guarantee, and administrative fees paid to the servicer of the Loans.
These deductions will be allocated entirely to the holders of the REMIC Residual
Certificates in the case of REMIC Trusts with multiple classes of REMIC Regular
Certificates that do not pay their principal amounts ratably. As a result, the
REMIC will report additional taxable income to holders of REMIC Residual
Certificates in an amount equal to their allocable share of such deductions, and
individuals, estates, or trusts holding an interest in such REMIC Residual
Certificates may have taxable income in excess of the cash received. In the case
of a "single-class REMIC," the expenses will be allocated, under Treasury
regulations, among the holders of the REMIC Regular Certificates and the REMIC
Residual Certificates on a daily basis in proportion to the relative amounts of
income accruing to each Certificateholder on that day. In the case of a holder
of a REMIC Regular Certificate who is an individual or a "pass-through interest
holder" (including certain pass-through entities, but not including real estate
investment trusts), the deductibility of such expenses will be subject to the
limitations described above. The reduction or disallowance of these deductions
may have a significant impact on the yield of REMIC Regular Certificates to such
a holder. In general terms, a single-class REMIC is one that either (i) would
qualify, under existing Treasury regulations, as a grantor trust if it were not
a REMIC (treating all interests as ownership interests, even if they would be
classified as debt for federal income tax purposes) or (ii) is similar to such a
trust and which is structured with the principal purpose of avoiding the
single-class REMIC rules.
FOREIGN INVESTORS
REMIC Regular Certificates. Except as discussed below, a holder of a
REMIC Regular Certificate who is not a "United States person" (as defined below)
generally will not be subject to United States income or withholding tax in
respect of a distribution on a REMIC Regular Certificate, provided that (i) the
holder complies to the extent necessary with certain identification
requirements, including timely delivery of a statement, signed by the holder of
the REMIC Regular Certificate under penalties of perjury, certifying that the
holder of the REMIC Regular Certificate is not a United States person and
providing the name and address of the holder, (ii) the holder is not a
"10-percent shareholder" within the meaning of Code Section 871(h)(3)(B), which
could be interpreted to apply to a holder of a REMIC Regular Certificate who
holds a direct or indirect 10 percent interest in the REMIC Residual
Certificates, (iii) the holder is not a "controlled foreign corporation" (as
defined in the Code) related to the REMIC or related to a 10 percent holder of a
residual interest in the REMIC, and (iv) the holder is not engaged in a United
States trade or business, or otherwise subject to federal income tax as a result
of any direct or indirect connection to the United States other than through its
ownership of a REMIC Regular Certificate. For these purposes, the term "United
States person" means (i) a citizen or resident of the United States, (ii) a
corporation, partnership or other entity created or organized in or under the
laws of the United States or any political subdivision thereof, (iii) an estate
whose income is includible in gross income for United States federal income
taxation regardless of its source, and (iv) a trust other than a "foreign trust"
as defined in Section 7701(a)(31) of the Code. Proposed Treasury regulations,
which would be effective with respect to payments made after December 31, 1997
if adopted in their current form, would provide alternative certification
requirements and means by which a holder of REMIC Certificates could claim the
exemption from federal income and withholding tax.
REMIC Residual Certificates. The Conference Report to the Tax Reform
Act of 1986 states that amounts paid to foreign persons with respect to residual
interests should be considered interest for purposes of the withholding rules.
Interest paid to a foreign person which is not effectively connected with a
trade or business of the foreign person in the United States is subject to a 30%
withholding tax. The withholding tax on interest does not apply, however, to
"portfolio interest" (if certain certifications as to beneficial ownership are
made, as discussed above under "Foreign Investors--Regular Certificates") or to
the extent a tax treaty reduces or eliminates the tax. Treasury regulations
provide that amounts paid with respect to residual interests qualify as
portfolio interest only if interest on the qualified mortgages held by the REMIC
qualifies as portfolio interest. Generally, interest on Loans held by a Trust
will not qualify as portfolio interest, although interest on the Private
Mortgage-Backed Securities, other pass-through certificates, or REMIC regular
interests held by a Trust may qualify. In any case, a holder of a REMIC Residual
Certificate will not be entitled to the portfolio interest exception from the
30% withholding tax (or to any treaty exemption or rate reduction) for that
portion of a payment that constitutes excess inclusions. Generally, the
withholding tax will be imposed when REMIC gross income is paid or distributed
to the holder of a residual interest or there is a disposition of the residual
interest.
The REMIC Regulations provide that a transfer of a REMIC Residual
Certificate to a foreign transferee will be disregarded for all federal income
tax purposes if the transfer has "tax avoidance potential." A transfer to a
foreign transferee will be considered to have tax avoidance potential unless at
the time of the transfer, the transferor reasonably expects that (1) the future
distributions on the REMIC Residual Certificate will equal at least 30 percent
of the anticipated excess inclusions and (2) such amounts will be distributed at
or after the time at which the excess inclusion accrues, but not later than the
close of the calendar year following the calendar year of accrual. A safe harbor
in the REMIC Regulations provides that the reasonable expectation requirement
will be satisfied if the above test would be met at all assumed prepayment rates
for the Trust Assets from 50 percent of the Prepayment Assumption to 200 percent
of the Prepayment Assumption. A transfer by a foreign transferor to a domestic
transferee will likewise be disregarded under the REMIC Regulations if the
transfer would have the effect of allowing the foreign transferor to avoid the
tax on accrued excess inclusions.
BACKUP WITHHOLDING
Distributions made on the REMIC Certificates and proceeds from the
sale of REMIC Certificates to or through certain brokers may be subject to a
"backup" withholding tax of 31 percent of "reportable payments" (including
interest accruals, original issue discount, and, under certain circumstances,
distributions in reduction of principal amount) unless, in general, the holder
of the REMIC Certificate complies with certain procedures or is an exempt
recipient. Any amounts so withheld from distributions on the REMIC Certificates
would be refunded by the Internal Revenue Service or allowed as a credit against
the holder's federal income tax.
REMIC ADMINISTRATIVE MATTERS
The federal information returns for a Trust (Form 1066 and Schedules Q
thereto) must be filed as if the Trust were a partnership for federal income tax
purposes. Information on Schedule Q must be provided to holders of REMIC
Residual Certificates with respect to every calendar quarter. Each holder of a
REMIC Residual Certificate will be required to treat items on its federal income
tax returns consistently with their treatment on the Trust's information returns
unless the holder either files a statement identifying the inconsistency or
establishes that the inconsistency resulted from an incorrect schedule received
from the Trust. The Trust also will be subject to the procedural and
administrative rules of the Code applicable to partnerships, including the
determination of any adjustments to, among other things, items of REMIC taxable
income by the Internal Revenue Service. (Treasury regulations exempt from
certain of these procedural rules REMICs having no more than one residual
interest holder.) Holders of REMIC Residual Certificates will have certain
rights and obligations with respect to any administrative or judicial
proceedings involving the Internal Revenue Service. Under the Code and
Regulations, a REMIC generally is required to designate a tax matters person.
Generally, subject to various limitations, the tax matters person has authority
to act on behalf of the REMIC and the holders of the REMIC Residual Certificates
in connection with administrative determinations and judicial review respecting
returns of taxable income of the REMIC.
Unless otherwise indicated in the Prospectus Supplement, and to the
extent allowable, the Representative or its designee will act as the tax matters
person for each REMIC. Each holder of a REMIC Residual Certificate, by the
acceptance of its interest in the REMIC Residual Certificate, agrees that the
Representative or its designee will act as the holder's fiduciary in the
performance of any duties required of the holder in the event that the holder is
the tax matters person.
NON-REMIC CERTIFICATES ISSUED BY A GRANTOR TRUST
The discussion under this heading applies only to a series of
Certificates with respect to which a REMIC election is not made and for which
the Trust is classified as a grantor trust for federal income tax purposes.
Tax Status of the Trust. Upon the issuance of each series of Non-REMIC
Certificates, Federal Tax Counsel will deliver its opinion to the effect that,
under then current law, assuming compliance with the Agreement, the related
Trust will be classified for federal income tax purposes as a grantor trust and
not as an association taxable as a corporation or a taxable mortgage pool.
Accordingly, each holder of a Non-REMIC Certificate will be treated for federal
income tax purposes as the owner of an undivided interest in the Trust Assets
included in the Trust. As further described below, each holder of a Non-REMIC
Certificate therefore must report on its federal income tax return the gross
income from the portion of the Trust Assets that is allocable to such Non-REMIC
Certificate and may deduct the portion of the expenses incurred by the Trust
that is allocable to such Non-REMIC Certificate, at the same time and to the
same extent as such items would be reported by such holder if it had purchased
and held directly such interest in the Trust Assets and received directly its
share of the payments on the Trust Assets and incurred directly its share of
expenses incurred by the Trust when those amounts are received or incurred by
the Trust.
A holder of a Non-REMIC Certificate that is an individual, estate, or
trust will be allowed deductions for such expenses only to the extent that the
sum of those expenses and the holder's other miscellaneous itemized deductions
exceeds two percent of such holder's adjusted gross income. In addition, the
amount of certain itemized deductions otherwise allowable for the taxable year
for an individual whose adjusted gross income exceeds the "applicable amount"
($100,000 (or $50,000 in the case of a separate return by a married individual),
adjusted for changes in the cost of living subsequent to 1990) will be reduced
by the lesser of (i) 3 percent of the excess of adjusted gross income over the
applicable amount, or (ii) 80% of the amount of itemized deductions otherwise
allowable for such taxable year. A holder of a Non-REMIC Certificate that is not
a corporation cannot deduct such expenses for purposes of the alternative
minimum tax (if applicable). Such deductions will include servicing, guarantee
and administrative fees paid to the servicer of the Loans. As a result, the
Trust will report additional taxable income to holders of Non-REMIC Certificates
in an amount equal to their allocable share of such deductions, and individuals,
estates, or trusts holding Non-REMIC Certificates may have taxable income in
excess of the cash received.
Status of the Non-REMIC Certificates. The Non-REMIC Certificates will
be "real estate assets" for purposes of Section 856(c)(5)(A) of the Code and
"loans . . . secured by an interest in real property" within the meaning of
Section 7701(a)(19)(C)(v) of the Code (assets qualifying under one or both of
those sections, applying each section separately, "qualifying assets") to the
extent that the Trust's assets are qualifying assets. The Non- REMIC
Certificates may not be qualifying assets under either of the foregoing sections
of the Code to the extent that the Trust's assets include Buydown Funds, reserve
funds, or payments on mortgages held pending distribution to Certificateholders.
Further, the Non-REMIC Certificates may not be "real estate assets" to the
extent loans held by the trust are not secured by real property, and may not be
"loans . . . secured by an interest in real property" to the extent loans held
by the trust are not secured by residential real property or real property used
primarily for church purposes. In addition, to the extent that the principal
amount of a loan exceeds the value of the property securing the loan, it is
unclear and Federal Tax Counsel is unable to opine whether the loan will be a
qualifying asset.
Taxation of Non-REMIC Certificates Under Stripped Bond Rules. The
federal income tax treatment of the Non-REMIC Certificates will depend on
whether they are subject to the rules of section 1286 of the Code (the "stripped
bond rules"). The Non-REMIC Certificates will be subject to those rules if
stripped interest-only Certificates are issued. In addition, whether or not
stripped interest-only Certificates are issued, the Internal Revenue Service may
contend that the stripped bond rules apply on the ground that the Master
Servicer's servicing fee, or other amounts, if any, paid to (or retained by) the
Master Servicer or its affiliates, as specified in the applicable Prospectus
Supplement, represent greater than an arm's length consideration for servicing
the Loans and should be characterized for federal income tax purposes as an
ownership interest in the Loans. The Internal Revenue Service has taken the
position in Revenue Ruling 91-46 that retained interest in excess of reasonable
compensation for servicing is treated as a "stripped coupon" under the rules of
Code Section 1286.
If interest retained for the Master Servicer's servicing fee or other
interest is treated as a "stripped coupon," the Non-REMIC Certificates will
either be subject to the original issue discount rules or the market discount
rules. A holder of a Non-REMIC Certificate will account for any discount on the
Non-REMIC Certificate as market discount rather than original issue discount if
either (i) the amount of original issue discount with respect to the Non-REMIC
Certificate was treated as zero under the original issue discount de minimis
rule when the Non-REMIC Certificate was stripped or (ii) no more than 100 basis
points (including any amount of servicing in excess of reasonable servicing) is
stripped off from the Loans. If neither of the above exceptions applies, the
original issue discount rules will apply to the Non-REMIC Certificates.
If the original issue discount rules apply, the holder of a Non-REMIC
Certificate (whether a cash or accrual method taxpayer) will be required to
report interest income from the Non-REMIC Certificate in each taxable year equal
to the income that accrues on the Non-REMIC Certificate in that year calculated
under a constant yield method based on the yield of the Non-REMIC Certificate
(or, possibly, the yield of each Trust Asset underlying such Non-REMIC
Certificate) to such holder. Such yield would be computed at the rate that, if
used in discounting the holder's share of the payments on the Trust Assets,
would cause the present value of those payments to equal the price at which the
holder purchased the Non-REMIC Certificate. With respect to certain categories
of debt instruments, Section 1272(a)(6) of the Code requires that original issue
discount be accrued based on a prepayment assumption determined in a manner
prescribed by forthcoming regulations. It is unclear whether such regulations
would apply this rule to the Non-REMIC Certificates, whether Section 1272(a)(6)
might apply to the Non-REMIC Certificates in the absence of such regulations, or
whether the Internal Revenue Service could require use of a reasonable
prepayment assumption based on other tax law principles and Federal Tax Counsel
is unable to opine with respect to these issues. If required to report interest
income on the Non-REMIC Certificates to the Internal Revenue Service under the
stripped bond rules, it is anticipated that the Trustee will calculate the yield
of the Non- REMIC Certificates based on a representative initial offering price
of the Non-REMIC Certificates and a reasonable assumed rate of prepayment of the
Trust Assets (although such yield may differ from the yield to any particular
holder that would be used in calculating the interest income of such holder).
The Prospectus Supplement for each series of Non-REMIC Certificates will
describe the prepayment assumption that will be used for this purpose, but no
representation is made that the Trust Assets will prepay at that rate or at any
other rate.
In the case of a Non-REMIC Certificate acquired at a price equal to
the principal amount of the Trust Assets allocable to the Non-REMIC Certificate,
the use of a reasonable prepayment assumption would not have any significant
effect on the yield used in calculating accruals of interest income. In the
case, however, of a Non- REMIC Certificate acquired at a discount or premium
(that is, at a price less than or greater than such principal amount,
respectively), the use of a reasonable prepayment assumption would increase or
decrease such yield, and thus accelerate or decelerate the reporting of interest
income, respectively.
If a Loan is prepaid in full, the holder of a Non-REMIC Certificate
acquired at a discount or premium generally will recognize ordinary income or
loss equal to the difference between the portion of the prepaid principal amount
of the Loan that is allocable to the Non-REMIC Certificate and the portion of
the adjusted basis of the Non- REMIC Certificate (see "Sales of Non-REMIC
Certificates" below) that is allocable to the Loan. The method of allocating
such basis among the Loans may differ depending on whether a reasonable
prepayment assumption is used in calculating the yield of the Non-REMIC
Certificates for purposes of accruing original issue discount. It is not clear
whether any other adjustments would be required to reflect differences between
the prepayment rate that was assumed in calculating yield and the actual rate of
prepayments.
In the case of a Non-REMIC Certificate which represents interests in
Loans that are subject to the original issue discount rules, the daily portions
of original issue discount generally will be calculated under the principles
discussed in "REMIC Regular Certificates--Current Income on REMIC Regular
Certificates--Original Issue Discount--Variable Rate REMIC Regular
Certificates."
Taxation of Non-REMIC Certificates If Stripped Bond Rules Do Not
Apply. If the stripped bond rules do not apply to a Non-REMIC Certificate, then
the holder will be required to include in income its share of the interest
payments on the Trust Assets in accordance with its tax accounting method. In
addition, if the holder purchased the Non-REMIC Certificate at a discount or
premium, the holder will be required to account for such discount or premium in
the manner described below. The treatment of any discount will depend on whether
the discount is original issue discount as defined in the Code and, in the case
of discount other than original issue discount, whether such other discount
exceeds a de minimis amount. In the case of original issue discount, the holder
(whether a cash or accrual method taxpayer) will be required to report as
additional interest income in each month the portion of such discount that
accrues in that month, calculated based on a constant yield method. In general
it is not anticipated that the amount of original issue discount to be accrued
in each month, if any, will be significant relative to the interest paid
currently on the Trust Assets. However, original issue discount could arise with
respect to a Loan ("ARM") that provides for interest at a rate equal to the sum
of an index of market interest rates and a fixed number. The original issue
discount for ARMs generally will be determined under the principles discussed in
"REMIC Regular Certificates--Current Income on REMIC Regular
Certificates--Original Issue Discount--Variable Rate REMIC Regular
Certificates."
If discount other than original issue discount exceeds a de minimis
amount (described below), the holder will also generally be required to include
in income in each month the amount of such discount accrued through such month
and not previously included in income, but limited, with respect to the portion
of such discount allocable to any Trust Asset, to the amount of principal on
such Trust Asset received by the Trust in that month. Because the Trust Assets
may provide for monthly principal payments, such discount may be required to be
included in income at a rate that is not significantly slower than the rate at
which such discount accrues (and therefore at a rate not significantly slower
than the rate at which such discount would be included in income if it were
original issue discount). The holder may elect to accrue such discount under a
constant yield method based on the yield of the Non-REMIC Certificate to such
holder. In the absence of such an election, it may be necessary to accrue such
discount under a more rapid straight-line method. Under the de minimis rule,
market discount with respect to a Non-REMIC Certificate will be considered to be
zero if it is less than the product of (i) 0.25% of the principal amount of the
Trust Assets allocable to the Non-REMIC Certificate and (ii) the weighted
average life (in complete years) of the Trust Assets remaining at the time of
purchase of the Non-REMIC Certificate.
If a holder purchases a Non-REMIC Certificate at a premium, such
holder may elect under Section 171 of the Code to amortize the portion of such
premium that is allocable to a Loan under a constant yield method based on the
yield of the Loan to such holder, provided that such Loan was originated after
September 27, 1985. Premium allocable to a Loan originated on or before that
date should be allocated among the principal payments on the Loan and allowed as
an ordinary deduction as principal payments are made or, perhaps, upon
termination.
It is not clear whether the foregoing adjustments for discount or
premium would be made based on the scheduled payments on the Loans or taking
account of a reasonable prepayment assumption, and Federal Tax Counsel is unable
to opine on this issue.
If a Loan is prepaid in full, the holder of a Non-REMIC Certificate
acquired at a discount or premium will recognize ordinary income or loss equal
to the difference between the portion of the prepaid principal amount of the
Loan that is allocable to the Non-REMIC Certificate and the portion of the
adjusted basis of the Non-REMIC Certificate (see "Sales of Non-REMIC
Certificates" below) that is allocable to the Loan. The method of allocating
such basis among the Loans may differ depending on whether a reasonable
prepayment assumption is used in calculating the yield of the Non-REMIC
Certificates for purposes of accruing original issue discount. Other adjustments
might be required to reflect differences between the prepayment rate that was
assumed in accounting for discount or premium and the actual rate of
prepayments.
Sales of Non-REMIC Certificates. A holder that sells a Non-REMIC
Certificate will recognize gain or loss equal to the difference between the
amount realized on the sale and its adjusted basis in the Non-REMIC Certificate.
In general, such adjusted basis will equal the holder's cost for the Non-REMIC
Certificate, increased by the amount of any income previously reported with
respect to the Non-REMIC Certificate and decreased by the amount of any losses
previously reported with respect to the Non-REMIC Certificate and the amount of
any distributions received thereon. Any such gain or loss generally will be
capital gain or loss if the assets underlying the Non-REMIC Certificate were
held as capital assets, except that, for a Non-REMIC Certificate to which the
stripped bond rules do not apply and that was acquired with more than a de
minimis amount of discount other than original issue discount (see "Taxation of
Non-REMIC Certificates if Stripped Bond Rules Do Not Apply" above), such gain
will be treated as ordinary interest income to the extent of the portion of such
discount that accrued during the period in which the seller held the Non-REMIC
Certificate and that was not previously included in income.
Foreign Investors. A holder of a Non-REMIC Certificate who is not a
"United States person" (as defined below) and is not subject to federal income
tax as a result of any direct or indirect connection to the United States other
than its ownership of a Non-REMIC Certificate generally will not be subject to
United States income or withholding tax in respect of payments of interest or
original issue discount on a Non-REMIC Certificate to the extent attributable to
Loans that were originated after July 18, 1984, provided that the holder
complies to the extent necessary with certain identification requirements
(including delivery of a statement, signed by the holder of the Non-REMIC
Certificate under penalties of perjury, certifying that such holder is not a
United States person and providing the name and address of such holder).
Proposed Treasury regulations, which would be effective with respect to payments
made after December 31, 1997 if adopted in their current form, would provide
alternative certification requirements and means by which a holder of Non-REMIC
Certificates could claim the exemption from federal income and withholding tax.
Interest or original issue discount on a Non-REMIC Certificate attributable to
Loans that were originated prior to July 19, 1984 will be subject to a 30%
withholding tax (unless such tax is reduced or eliminated by an applicable tax
treaty). For these purposes, the term "United States person" means a citizen or
a resident of the United States, a corporation, partnership or other entity
created or organized in, or under the laws of, the United States or any
political subdivision thereof, an estate the income of which is subject to
United States federal income taxation regardless of its source, or a trust other
than a "foreign trust," as defined in Section 7701(a)(31) of the Code.
TAXABLE MORTGAGE POOLS
Effective January 1, 1992, certain entities classified as "taxable
mortgage pools" are subject to corporate level tax on their net income. A
"taxable mortgage pool" is generally defined as an entity that meets the
following requirements: (i) the entity is not a REMIC (or, after September 1,
1997, a FASIT), (ii) substantially all of the assets of the entity are debt
obligations, and more than 50 percent of such debt obligations consist of real
estate mortgages (or interests therein), (iii) the entity is the obligor under
debt obligations with two or more maturities, and (iv) payments on the debt
obligations on which the entity is the obligor bear a relationship to the
payments on the debt obligations which the entity holds as assets. With respect
to requirement (iii) , the Code authorizes the Internal Revenue Service to
provide by regulations that equity interests may be treated as debt for purposes
of determining whether there are two or more maturities. If a Series of
Non-REMIC Certificates were treated as obligations of a taxable mortgage pool,
the Trust would be ineligible to file consolidated returns with any other
corporation and could be liable for corporate tax. Treasury regulations do not
provide for the recharacterization of equity as debt for purposes of determining
whether an entity has issued debt with two maturities, except in the case of
transactions structured to avoid the taxable mortgage pool rules.
NON-REMIC CERTIFICATES AND NOTES OF A TRUST INTENDED TO BE CHARACTERIZED AS A
PARTNERSHIP
The discussion under this heading applies only to a series of
Certificates and Notes with respect to which a REMIC election is not made and
for which the Trust is intended to be classified as a partnership for federal
income tax purpose.
Federal Tax Counsel will deliver its opinion for a Trust which is
intended to be a partnership for federal income tax purposes, as specified in
the related Prospectus Supplement, generally to the effect that the Trust will
not be an association (or publicly traded partnership) taxable as a corporation
for federal income tax purposes. This opinion will be based on the assumption
that the terms of the Agreements and related documents will be complied with,
such that an election has not been and will not be made to treat the Trust as an
association taxable as a corporation, and on counsel's conclusion that the
nature of the income of the Trust will exempt it from the rule that certain
publicly traded partnerships are taxable as corporations or such rule is
otherwise inapplicable to the Trust, so that the Trust will not be characterized
as a publicly traded partnership taxable as a corporation.
Certain entities classified as "taxable mortgage pools" are subject to
corporate level tax on their net income. A "taxable mortgage pool" is generally
defined as an entity that meets the following requirements: (i) the entity is
not a REMIC (or, after September 1, 1997, a FASIT), (ii) substantially all of
the assets of the entity are debt obligations, and more than 50 percent of such
debt obligations consists of real estate mortgages (or interests therein), (iii)
the entity is the obligor under debt obligations with two or more maturities,
and (iv) payments on the debt obligations on which the entity is the obligor
bear a relationship to the payments on the debt obligations which the entity
holds as assets. With respect to requirement (iii), the Code authorizes the
Internal Revenue Service to provide by regulations that equity interests may be
treated as debt for purposes of determining whether there are two or more
maturities. If the Trust were treated as a taxable mortgage pool, it would be
ineligible to file consolidated returns with any other corporation and could be
liable for corporate tax. Treasury regulations do not provide for the
recharacterization of equity as debt for purposes of determining whether an
entity has issued debt with two maturities, except in the case of transactions
structured to avoid the taxable mortgage pool rules. Federal Tax Counsel will
deliver its opinion for a Trust which is intended to be a partnership for
federal income tax purposes, as specified in the related Prospectus Supplement,
generally to the effect that the Trust will not be a taxable mortgage pool. This
opinion will be based on the assumption that the terms of the Agreements and
related documents will be complied with, and on counsel's conclusion that either
the number of classes of debt obligations issued be the Trust, or the nature of
the assets held by the Trust, will exempt the Trust from treatment as a taxable
mortgage pool.
If the Trust were taxable as a corporation for federal income tax
purposes, the Trust would be subject to corporate income tax on its taxable
income. The Trust's taxable income would include all its income, possibly
reduced by its interest expense on the Notes. Any such corporate income tax
could materially reduce cash available to make payments on the Notes and
distributions on the Certificates, and Certificateholders could be liable for
any such tax that is unpaid by the Trust. In additions, all distributions to the
Certificateholders would be taxable as dividends.
TAX CONSEQUENCES TO HOLDERS OF THE NOTES ISSUED BY A PARTNERSHIP
Treatment Of The Notes As Indebtedness. The Trust will agree, and the
Noteholders will agree by their purchase of Notes, to treat the Notes as debt
for federal income tax purposes. Except as otherwise provided in the related
Prospectus Supplement, Federal Tax Counsel will advise the Representative that
in its opinion the Notes will be classified as debt for federal income tax
purposes.
Possible Alternative Treatments Of The Notes. If, contrary to the
opinion of counsel, the Internal Revenue Service successfully asserted that one
or more of the Notes did not represent debt for federal income tax purposes, the
Notes might be treated as equity interests in the Trust. If so treated, the
Trust might be taxable as a corporation with the adverse consequences described
above (and the taxable corporation would not be able to reduce its taxable
income by deductions for interest expense on Notes recharacterized as equity).
Alternatively, the Trust might be treated as a publicly traded partnership that
would not be taxable as a corporation because it would meet certain qualifying
income tests. Nonetheless, treatment of the Notes as equity interests in such a
publicly traded partnership could have adverse tax consequences to certain
holders. For example, income to foreign holders generally would be subject to
United States federal income tax and United States federal income tax return
filing and withholding requirements, and individual holders might be subject to
certain limitations on their ability to deduct their share of the Trust's
expenses.
Interest Income On The Notes. The stated interest on the Notes will be
taxable to a Noteholder as ordinary income when received or accrued in
accordance with such Noteholder's method of tax accounting. It is not
anticipated that the Notes will be issued with original issue discount within
the meaning of Section 1273 of the Code. A subsequent holder who purchases a
Note at a discount that exceeds a statutorily defined de minimis amount will be
subject to the "market discount" rules of the Code, and a holder who purchases a
Note at a premium will be subject to the premium amortization rules of the Code.
Sale or Other Disposition. If a Noteholder sells a Note, the holder
will recognize gain or loss in an amount equal to the difference between the
amount realized on the sale and the holder's adjusted tax basis in the Note. The
adjusted tax basis of a Note to a particular Noteholder will equal the holder's
cost for the Note, increased by any original issue discount (if any), market
discount and gain previously included by such Noteholder in income with respect
to the Note and decreased by the amount of bond premium (if any) previously
amortized and by the amount of principal payments previously received by such
Noteholder with respect to such Note. Subject to the rules of the Code
concerning market discount on the Notes, any such gain or loss generally will be
capital gain or loss if the Note was held as a capital asset. Capital losses
generally may be deducted only to the extent the Noteholder has capital gains
for the taxable year, although under certain circumstances non-corporate
Noteholders can deduct losses in excess of available capital gains.
Foreign Holders. If interest paid (or accrued) to a Noteholder who is
a nonresident alien, foreign corporation or other non-United States person (a
"foreign person") is not effectively connected with the conduct of a trade or
business within the United States by the foreign person, the interest generally
will be considered "portfolio interest," and generally will not be subject to
United States federal income tax and withholding tax, if the foreign person (i)
is not actually or constructively a "10 percent shareholder" of the Trust or the
Representative (including a holder of 10% of the outstanding Certificates) or a
"controlled foreign corporation" with respect to which the Trust or the
Representative is a "related person" within the meaning of the Code and (ii)
provides the person otherwise required to withhold United States tax with an
appropriate statement, signed under penalties of perjury, certifying that the
beneficial owner of the Note is a foreign person and providing the foreign
person's name and address. If the information provided in the statement changes,
the foreign person must so inform the person otherwise required to withhold
United States tax within 30 days of such change. The statement generally must be
provided in the year a payment occurs (prior to such payment) or in either of
the two preceding years. If a Note is held through a securities clearing
organization or certain other financial institutions, the organization or
institution may provide a signed statement to the withholding agent. However, in
that case, the signed statement must be accompanies by a Form W-8 or substitute
form provided by the foreign person that owns the Note. If such interest in not
portfolio interest, then it will be subject to United States federal income and
withholding tax at a rate of 30%, unless reduced or eliminated pursuant to an
applicable tax treaty.
Any capital gain realized on the sale, redemption, retirement or other
taxable disposition of a Note by a foreign person will be exempt from United
States federal income and withholding tax, provided that (i) the gain is not
effectively connected with the conduct of a trade or business in the United
States by the foreign person and (ii) in the case of an individual foreign
person, the foreign individual is not present in the United States for 183 days
or more in the taxable year.
If the interest, gain or income on a Note held by a foreign person is
effectively connected with the conduct of a trade or business in the United
States by the foreign person (although exempt from the withholding tax
previously discussed if the holder provides an appropriate statement), the
holder generally will be subject to United States federal income tax on the
interest, gain or income at regular federal income tax rates. In addition, if
the foreign person is a foreign corporation, it may be subject to a branch
profits tax equal to 30% of its "effectively connected earnings and profits"
within the meaning of the Code for the taxable year, as adjusted for certain
items, unless it qualifies for a lower rate under an applicable tax treaty (as
modified by the branch profits tax rules).
Proposed Treasury regulations, which would be effective with respect
to payments made after December 31, 1997 if adopted in their current form, would
provide alternative certification requirements and means for obtaining the
exemption from federal income and withholding tax.
Information Reporting and Backup Withholding. The Trust will be
required to report annually to the Internal Revenue Service, and to each
Noteholder of record, the amount of interest paid on the Notes (and the amount
of interest withheld for federal income taxes, if any) for each calendar year,
except as to exempt holders (generally, holders that are corporations,
tax-exempt organizations, qualified pension and profit-sharing trusts,
individual retirement accounts, or nonresident aliens who provide certification
as to their status as nonresidents). Accordingly, each holder (other than exempt
holders who are not subject to the reporting requirements) will be required to
provide, under penalties of perjury, a certificate containing the holder's name,
address, correct federal taxpayer identification number and a statement that the
holder is not subject to backup withholding. Should a nonexempt Noteholder fail
to provide the required certification, the Trust will be required to withhold
31% of the amount otherwise payable to the holder, and remit the withheld amount
to the Internal Revenue Service, as a credit against the holder's federal income
tax liability.
TAX CONSEQUENCES TO HOLDERS OF CERTIFICATES ISSUED BY A PARTNERSHIP
Treatment of the Issuer as a Partnership. In the case of a Trust
intended to qualify as a partnership for federal income tax purposes, the Trust
and the Representative will agree, and the Certificateholders will agree by
their purchase of Certificates, to treat the Trust as a partnership for purposes
of United States federal and state income tax, franchise tax and any other tax
measured in whole or in part by income, with the assets of the partnership being
the assets held by the Trust, the partners of the partnership being the
Certificateholders, and the Notes, if any, being debt of the partnership.
However, the proper characterization of the arrangement involving the Trust, the
Certificates, the Notes, and the Master Servicer is not clear because there is
no authority on transactions closely comparable to that contemplated herein.
A variety of alternative characterizations are possible. For example,
because the Certificates have certain features characteristic of debt, the
Certificates might be considered debt of the Trust. Generally, provided the
Certificates are issued at or close to face value, any such characterization
should not result in materially adverse tax consequences to Certificateholders
as compared to the consequences from treatment of the Certificates as equity in
a partnership, described below. The following discussion assumes that the
Certificates represent equity interests in a partnership.
Partnership Taxation. As a partnership, the Trust will not be subject
to federal income tax. Rather, each Certificateholder will be required to
separately take into account such holder's allocated share of income, gains,
losses, deductions and credits of the Trust. The Trust's income will consist
primarily of interest and finance charges earned on the Loans (including
appropriate adjustments for market discount, original issue discount and bond
premium) and any gain upon collection or disposition of Loans. The Trust's
deductions will consist primarily of interest and original issue discount
accruing with respect to the Notes, servicing and other fees, and losses or
deductions upon collection or disposition of Loans.
The tax items of a partnership are allocable to the partners in
accordance with the Code, Treasury regulations and the partnership agreement
(here, the Trust Agreement and related documents). The Trust Agreement will
provide, in general, that the Certificateholders will be allocated taxable
income of the Trust for each month equal to the sum of (i) the interest that
accrues on the Certificates in accordance with their terms for such month,
including interest accruing at the Pass-Through Rate for such month and interest
on amounts previously due on the Certificates but not yet distributed; (ii) any
Trust income attributable to discount on the Loans that corresponds to any
excess of the principal amount of the Certificates over their initial issue
price; (iii) prepayment premium payable to the Certificateholders for such
month; and (iv) any other amounts of income payable to the Certificateholders
for such month. Such allocation will be reduced by any amortization by the Trust
of premium on Loans that corresponds to any excess of the issue price of
Certificates over their principal amount. All remaining taxable income of the
Trust will be allocated to the Representative. Based on the economic arrangement
of the parties, this approach for allocating Trust income should be permissible
under applicable Treasury regulations, although no assurance can be given that
the Internal Revenue Service would not require a greater amount of income to be
allocated to Certificateholders. Moreover, even under the foregoing method of
allocation, Certificateholders may be allocated income equal to the entire
Pass-Through Rate plus the other items described above even though the Trust
might not have sufficient cash to make current cash distributions of such
amount. Thus, cash basis holders will in effect be required to report income
from the Certificates on the accrual basis and Certificateholders may become
liable for taxes on Trust income even if they have not received cash from the
Trust to pay such taxes. In addition, because tax allocations and tax reporting
will be done on a uniform basis for all Certificateholders, but
Certificateholders may be purchasing Certificates at different times and at
different prices, Certificateholders may be required to report on their tax
returns taxable income that is greater or less than the amount reported to them
by the Trust.
If Notes are also issued, some or all of the taxable income allocated
to a Certificateholder that is a pension, profit sharing or employee benefit
plan or other tax-exempt entity (including an individual retirement account)
will constitute "unrelated business taxable income" generally taxable to such a
holder under the Code.
An individual taxpayer's share of expenses of the Trust (including
fees to the Servicer but not interest expense) would be miscellaneous itemized
deductions. Such deductions might be disallowed to the individual in whole or in
part and might result in such holder being taxed on an amount of income that
exceeds the amount of cash actually distributed to such holder over the life of
the Trust.
The Trust intends to make all tax calculations relating to income and
allocations to Certificateholders on an aggregate basis. If the Internal Revenue
Service were to require that such calculations be made separately for each Loan,
the Trust might be required to incur additional expense but it is believed that
there would not be a material adverse effect on Certificateholders.
Discount and Premium. It is believed that the Loans were not issued
with original issue discount and, therefore, the Trust should not have original
issue discount income. However, the purchase price paid by the Trust for the
Loans may be greater or less than the remaining principal balance of the Loans
at the time of purchase. If so, the Loan will have been acquired at a premium or
discount, as the case may be. (As indicated above, the Trust will make this
calculation on an aggregate basis, but might be required to recompute it on a
Loan by Loan basis.)
If the Trust acquires the Loans at a market discount or premium, the
Trust will elect to include any such discount in income currently as it accrues
over the life of the Loans or to offset any such premium against interest income
on the Loans. As indicated above, a portion of such market discount income or
premium deduction may be allocated to Certificateholders.
Section 708 Termination. Under Section 708 of the Code, the Trust will
be deemed to terminate for federal income tax purposes if 50% or more of the
capital and profits interests in the Trust are sold or exchanged within a
12-month period. If such a termination occurs, the partnership will be
considered to transfer its assets and liabilities to a new partnership in
exchange for interests in that new partnership, which it would then be treated
as transferring to its partners. The Trust will not comply with certain
technical requirements that might apply when such a constructive termination
occurs. As a result, the Trust may be subject to certain tax penalties and may
incur additional expenses if it is required to comply with those requirements.
Furthermore, the Trust might not be able to comply due to lack of data.
Disposition of Certificates. Generally, capital gain or loss will be
recognized on a sale of Certificates in an amount equal to the difference
between the amount realized and the seller's tax basis in the Certificates sold.
A Certificateholder's tax basis in a Certificate will generally equal the
holder's cost increased by the holder's share of Trust income (includible in
income) and decreased by any distributions received with respect to such
Certificate. In addition, both the tax basis in the Certificates and the amount
realized on a sale of a Certificate would include the holder's share of the
Notes and other liabilities of the Trust. A holder acquiring Certificates at
different prices may be required to maintain a single aggregate adjusted tax
basis in such Certificates, and, upon sale or other disposition of some of the
Certificates, allocate a portion of such aggregate tax basis to the Certificates
sold (rather than maintaining a separate tax basis in each Certificate for
purposes of computing gain or loss on a sale of that Certificate).
Any gain on the sale of a Certificate attributable to the holder's
share of unrecognized accrued market discount on the Loans would generally be
treated as ordinary income to the holder and would give rise to special tax
reporting requirements. The Trust does not expect to have any other assets that
would give rise to such special reporting requirements. Thus, to avoid those
special reporting requirements, the Trust will elect to include market discount
in income as it accrues.
If a Certificateholder is required to recognize an aggregate amount of
income (not including income attributable to disallowed itemized deductions
described above) over the life of the Certificates that exceeds the aggregate
cash distributions with respect thereto, such excess will generally give rise to
a capital loss upon the retirement of the Certificates.
Allocations Between Representative And Transferees. In general, the
Trust's taxable income and losses will be determined monthly and the tax items
for a particular calendar month will be apportioned among the Certificateholders
in proportion to the principal amount of Certificates owned by them as of the
close of the last day of such month. As a result, a holder purchasing
Certificates may be allocated tax items (which will affect its tax liability and
tax basis) attributable to periods before the actual transaction.
The use of such a monthly convention may not be permitted by existing
regulations and federal tax counsel is unable to opine on the matter. If a
monthly convention is not allowed (or only applies to transfers of less than all
of the partner's interest), taxable income or losses of the Trust might be
reallocated among the Certificateholders. The Trust's method of allocation
between transferors and transferees may be revised to conform to a method
permitted by future regulations.
Section 754 Election. In the event that a Certificateholder sells its
Certificates at a profit (loss), the purchasing Certificateholder will have a
higher (lower) basis in the Certificates than the selling Certificateholder had.
The tax basis of the Trust's assets will not be adjusted to reflect that higher
(or lower) basis unless the Trust were to file an election under Section 754 of
the Code. In order to avoid the administrative complexities that would be
involved in keeping accurate accounting records, as well as potentially onerous
information reporting requirements, the Trust currently does not intend to make
such election. As a result, Certificateholders might be allocated a greater or
lesser amount of Trust income than would be appropriate based on their own
purchase price for Certificates.
Administrative Matters. The Trustee is required to keep or have kept
complete and accurate books of the Trust. Such books will be maintained for
financial reporting and tax purposes on an accrual basis and the fiscal year of
the Trust will be the calendar year. The Trustee will file a partnership
information return (Internal Revenue Service Form 1065) with the Internal
Revenue Service for each taxable year of the Trust and will report each
Certificateholder's allocable share of items of Trust income and expense to
holders and the Internal Revenue Service on Schedule K-1. The Trust will provide
the Schedule K-1 information to nominees that fail to provide the Trust with the
information statement described below and such nominees will be required to
forward such information to the beneficial owners of the Certificates.
Generally, holders must file tax returns that are consistent with the
information return filed by the Trust or be subject to penalties unless the
holder notifies the Internal Revenue Service of all such inconsistencies.
Under Section 6031 of the Code, any person that holds Certificates as
a nominee at any time during a calendar year is required to furnish the Trust
with a statement containing certain information on the nominee, the beneficial
owners and the Certificates so held. Such information includes (i) the name,
address and taxpayer identification number of the nominee and (ii) as to each
beneficial owner (x) the name, address and identification number of such person,
(y) whether such person is a United States person, a tax-exempt entity or a
foreign government, an international organization, or any wholly owned agency or
instrumentality of either of the foregoing, and (z) certain information on
Certificates that were held, bought or sold on behalf of such person throughout
the year. In addition, brokers and financial institutions that hold Certificates
through a nominee are required to furnish directly to the Trust information as
to themselves and their ownership of Certificates. A clearing agency registered
under Section 17A of the Exchange Act is not required to furnish any such
information statement to the Trust. The information referred to above for any
calendar year must be furnished to the Trust on or before the following January
31. Nominees, brokers and financial institutions that fail to provide the Trust
with the information described above may be subject to penalties.
The Representative will be designated as the tax matters partner in
the related Trust Agreement and, as such, will be responsible for representing
the Certificateholders in any dispute with the Internal Revenue Service. The
Code provides for administrative examination of a partnership as if the
partnership were a separate and distinct taxpayer. Generally, the statute of
limitations for partnership items does not expire before three years after the
date on which the partnership information return is filed. Any adverse
determination following an audit of the return of the Trust by the appropriate
taxing authorities could result in an adjustment of the returns of the
Certificateholders, and, under certain circumstances, a Certificateholder may be
precluded from separately litigating a proposed adjustment to the items of the
Trust. An adjustment could also result in an audit of a Certificateholder's
returns and adjustments of items not related to the income and losses of the
Trust.
Tax Consequences to Foreign Certificateholders. It is not clear and
federal tax counsel is unable to opine whether the Trust would be considered to
be engaged in a trade or business in the United States for purposes of federal
withholding taxes with respect to non-United States persons because there is no
clear authority dealing with that issue under facts substantially similar to
those described herein. Although it is not expected that the Trust would be
engaged in a trade or business in the United States for such purposes, the Trust
will withhold as if it were so engaged in order to protect the Trust from
possible adverse consequences of a failure to withhold. The Trust expects to
withhold on the portion of its taxable income that is allocable to foreign
Certificateholders pursuant to Section 1446 of the Code, as if such income were
effectively connected to a United States trade or business, at a rate of 35% for
foreign holders that are taxable as corporations and 39.6% for all other foreign
holders. Subsequent adoption of Treasury regulations or the issuance of other
administrative pronouncements may require the Trust to change its withholding
procedures.
If the trust is engaged in a United States trade or business, each
foreign holder might be required to file a United States individual or corporate
income tax return (including, in the case of a corporation, the branch profits
tax) on its share of the Trust's income. A foreign holder generally would be
entitled to file with the Internal Revenue Service a claim for refund with
respect to taxes withheld by the Trust taking the position that no taxes were
due because the Trust was not engaged in a United States trade or business.
However, interest payments made (or accrued) to a Certificateholder who is a
foreign person generally will be considered guaranteed payments to the extent
such payments are determined without regard to the income of the Trust, and for
that reason or because of the nature of the assets of the Trust probably will
not be considered "portfolio interest." As a result, even if the Trust was not
considered to be engaged in a United States trade or business,
Certificateholders will be subject to United States federal income tax which
must be withheld at a rate of 30%, unless reduced or eliminated pursuant to an
applicable treaty. A foreign holder would be entitled to claim a refund for such
withheld tax, taking the position that the interest was portfolio interest and
therefore not subject to United States tax. However, the Internal Revenue
Service may disagree and no assurance can be given as to the appropriate amount
of tax liability. As a result, each potential foreign Certificateholder should
consult its tax advisor as to whether an interest in a Certificate is an
unsuitable investment.
Backup Withholding. Distributions made on the Certificates and
proceeds from the sale of the Certificates will be subject to a "backup"
withholding tax of 31% if, in general, the Certificateholder fails to comply
with certain identification procedures, unless the holder is an exempt recipient
under applicable provisions of the Code.
ERISA CONSIDERATIONS
ERISA imposes certain requirements on employee benefit plans and
collective investment funds, separate accounts and insurance company general
accounts in which such plans or arrangements are invested to which it applies
and on those persons who are fiduciaries with respect to such benefit plans.
Certain employee benefit plans, such as governmental plans (as defined in
Section 3(32) of ERISA) and certain church plans (as defined in Section 3(33) of
ERISA), are not subject to ERISA. In accordance with ERISA's general fiduciary
standards, before investing in a Security a benefit plan fiduciary should
determine whether such an investment is permitted under the governing benefit
plan instruments and is appropriate for the benefit plan in view of its overall
investment policy and the composition and diversification of its portfolio and
is prudent.
In addition, benefit plans subject to ERISA and individual retirement
accounts or certain types of Keogh plans not subject to ERISA but subject to
Section 4975 of the Code (each a "Plan") are prohibited from engaging in a broad
range of transactions involving Plan assets and persons having certain specified
relationships to a Plan ("parties in interest" and "disqualified persons"). Such
transactions are treated as "prohibited transactions" under Sections 406 and 407
of ERISA and excise taxes are imposed upon such persons by Section 4975 of the
Code. The Representative, the Originators, the Security Guaranty Insurer, the
Underwriter and the Trustee and certain of their affiliates might be considered
"parties in interest" or "disqualified persons" with respect to a Plan. If so,
the acquisition or holding or transfer of Securities by or on behalf of such
Plan could be considered to give rise to a "prohibited transaction" within the
meaning of ERISA and the Code unless an exemption is available. In addition, the
U.S. Department of Labor ("DOL") has issued a regulation (29 C.F.R. Section
2510.3-101) concerning the definition of what constitutes the assets of a Plan
(the "Plan Asset Regulations"), which provides that, as a general rule, the
underlying assets and properties of corporations, partnerships, trusts and
certain other entities in which a Plan makes an "equity" investment will be
deemed for purposes of ERISA to be assets of the investing Plan unless certain
exceptions apply. If an investing Plan's assets were deemed to include an
interest in the Loans and any other assets of the Trust and not merely an
interest in the Securities, the assets of the Trust would become subject to the
fiduciary investment standards of ERISA, and transactions occurring between the
Representative, the Trustee, the Master Servicer, the Security Guaranty Insurer
or any of their affiliates might constitute prohibited transactions, unless an
administrative exemption applies. Certain such exemptions which may be
applicable to the acquisition and holding of the Securities or to the servicing
of the Loans are noted below.
Regardless of whether the Securities are treated as debt or equity for
purposes of ERISA, the acquisition or holding of Securities which are Notes by
or behalf of a Plan could still be considered to give rise to a prohibited
transaction if the Trust is or becomes a party in interest or disqualified
person with respect to such Plan or in the event that a subsequent transfer of a
Note is made between a Plan and such party in interest or disqualified person.
However, one or more Investor Based Exemptions referred to below may be
applicable to exempt such prohibited transaction.
The DOL has issued an administrative exemption, Prohibited Transaction
Class Exemption 83-1 ("PTCE 83-1"), which, under certain conditions, exempts
from the application of the prohibited transaction rules of ERISA and the excise
tax provisions of Section 4975 of the Code transactions involving a Plan in
connection with the operation of a "mortgage pool" and the purchase, sale and
holding of "mortgage pool pass-through certificates." A "mortgage pool" is
defined as an investment pool, consisting solely of interest bearing obligations
secured by first or second mortgages or deeds of trust on single-family
residential property, property acquired in foreclosure and undistributed cash. A
"mortgage pool pass-through certificate" is defined as a certificate which
represents a beneficial undivided interest in a mortgage pool which entitles the
holder to pass-through payments of principal and interest from the mortgage
loans.
For the exemption to apply, PTCE 83-1 requires that (i) the
Representative and the Trustee maintain a system of insurance or other
protection for the Loans and the property securing such Loans, and for
indemnifying holders of Securities against reductions in pass-through payments
due to defaults in loan payments or property damage in an amount at least equal
to the greater of 1% of the aggregate principal balance of the Loans, or 1% of
the principal balance of the largest covered pooled Loan; (ii) the Trustee may
not be an affiliate of the Representative; and (iii) the payments made to and
retained by the Representative in connection with the Trust, together with all
funds inuring to its benefit for administering the Trust, represent no more than
"adequate consideration" for selling the Loans, plus reasonable compensation for
services provided to the Trust.
In addition, PTCE 83-1 exempts the initial sale of Securities to a
Plan with respect to which the Representative, the Security Guaranty Insurer,
the Master Servicer, or the Trustee is a party in interest if the Plan does not
pay more than fair market value for such Securities and the rights and interests
evidenced by such Securities are not subordinated to the rights and interests
evidenced by other Securities of the same pool. PTCE 83- 1 also exempts from the
prohibited transaction rules and transactions in connection with the servicing
and operation of the Pool, provided that any payments made to the Master
Servicer in connection with the servicing of the Trust are made in accordance
with a binding agreement, copies of which must be made available to prospective
investors.
In the case of any Plan with respect to which the Representative, the
Master Servicer, the Security Guaranty Insurer, or the Trustee is a fiduciary,
PTCE 83-1 will only apply if, in addition to the other requirements: (i) the
initial sale, exchange or transfer of Securities is expressly approved by an
independent fiduciary who has authority to manage and control those plan assets
being invested in Securities; (ii) the Plan pays no more for the Securities than
would be paid in an arm's length transaction; (iii) no investment management,
advisory or underwriting fee, sale commission, or similar compensation is paid
to the Representative with regard to the sale, exchange or transfer of
Securities to the Plan; (iv) the total value of the Securities purchased by such
Plan does not exceed 25% of the amount issued; and (v) at least 50% of the
aggregate amount of Securities is acquired by persons independent of the
Representative, the Trustee, the Master Servicer, and the Security Guaranty
Insurer.
Before purchasing Securities a fiduciary of a Plan should confirm that
the Trust is a "mortgage pool," that the Securities constitute "mortgage pool
pass-through certificates," and that the conditions set forth in PTCE 83-1 would
be satisfied. In addition to making its own determination as to the availability
of the exemptive relief provided in PTCE 83-1, the Plan fiduciary should
consider the availability of any other prohibited transaction exemptions. The
Plan fiduciary also should consider its general fiduciary obligations under
ERISA in determining whether to purchase any Securities on behalf of a Plan.
In addition, the DOL has granted to certain underwriters and/or
placement agents individual prohibited transaction exemptions (each an
"Underwriter Exemption") which may be applicable to avoid certain of the
prohibited transaction rules of ERISA with respect to the initial purchase, the
holding and the subsequent resale in the secondary market by Plans of
pass-through Securities representing a beneficial undivided ownership interest
in the assets of a trust that consist of certain receivables, loans and other
obligations that meet the conditions and requirements of the Underwriter
Exemption which may be applicable to the Securities. The conditions of an
Underwriter Exemption, if applicable, will be set forth in "ERISA
Considerations" in the Prospectus Supplement.
One or more other prohibited transaction exemptions issued by the DOL
may be available to a Plan investing in Securities depending in part upon the
type of Plan fiduciary making the decision to acquire a Security and the
circumstances under which such decision is made, including but not limited to:
PTCE 90-1, regarding investments by insurance company pooled separate accounts,
PTCE 91-38, regarding investments by bank collective investment funds, PTCE
84-14, regarding investments effectuated by "qualified plan asset managers",
PTCE 96-23, regarding investments effectuated by "in-house asset managers" and
PTCE 95-60, regarding investments by insurance company general accounts
("Investor Based Exemptions"). However, even if the conditions specified in an
Underwriter Exemption or one or more of these other exemptions are met, the
scope of the relief provided might or might not cover all acts which might be
construed as prohibited transactions.
Any Plan fiduciary considering the purchase of a Security should
consult with its counsel with respect to the potential applicability of ERISA
and the Code to such investment. Moreover, each Plan fiduciary should determine
whether, under the general fiduciary standards of investment prudence and
diversification, an investment in the Securities is appropriate for the Plan,
taking into account the overall investment policy of the Plan and the
composition of the Plan's investment portfolio.
LEGAL INVESTMENT CONSIDERATIONS
Each Prospectus Supplement will describe the extent, if any, to which
the Classes of Securities offered thereby will constitute "mortgage related
securities" for purposes of SMMEA. No representation is made herein as to
whether the Securities will constitute legal investments for any entity under
any applicable statute, law, rule, regulation or order. Prospective purchasers
are urged to consult with their counsel concerning the status of the Securities
as legal investments for such purchasers prior to investing in any Class of
Securities.
PLAN OF DISTRIBUTION
The Securities offered hereby will be offered in Series, either
directly by the Representative or through one or more underwriters or
underwriting syndicates ("Underwriters"). The Prospectus Supplement for each
Series will set forth the terms of the offering of such Series and of each Class
within such Series, including the name or names of the Underwriters, the
proceeds to and their use by the Representative and the Originators, and either
the initial public offering price, the discounts and commissions to the
Underwriters and any discounts or concessions allowed or reallowed to certain
dealers, or the method by which the price at which the Underwriters will sell
the Securities will be determined.
The Securities in a Series may be acquired by Underwriters for their
own account and may be resold from time to time in one or more transactions,
including negotiated transactions, at a fixed public offering price or at
varying prices determined at the time of sale. The obligations of any
Underwriters will be subject to certain conditions precedent, and such
Underwriters will be severally obligated to purchase all of a Series of
Securities described in the related Prospectus Supplement, if they are
purchased. If Securities of a Series are offered other than through
Underwriters, the related Prospectus Supplement will contain information
regarding the nature of such offering and any agreements to be entered into
between the seller and purchasers of Securities of such Series.
The place and time of delivery for the Securities of a Series in
respect of which this Prospectus is delivered will be set forth in the related
Prospectus Supplement.
LEGAL MATTERS
Certain legal matters relating to the validly of the issuance of the
Securities of each Series will be passed upon for the Representative by Eric R.
Elwin, Esq., Corporate Counsel of the Representative and certain legal matters
relating to the validity of the issuance of the Securities of each Series will
be passed upon for the Underwriter of the Securities of each Series by Stroock &
Stroock & Lavan LLP, New York, New York. Stroock & Stroock & Lavan LLP has
performed legal services for the Representative and it is expected that it will
continue to perform such services in the future.
EXPERTS
The consolidated financial statements of The Money Store Inc. as of
December 31, 1996 and 1995 and for each of the three years in the period ended
December 31, 1996 incorporated by reference herein have been audited by KPMG
Peat Marwick LLP, independent accountants, as stated in their opinion given upon
their authority as experts in accounting and auditing.
FINANCIAL INFORMATION
A new Trust will be formed to own the Trust Assets and to issue each
Series of Securities. Each such Trust will have no assets or obligations prior
to the issuance of the Securities and will not engage in any activities other
than those described herein. Accordingly, no financial statements with respect
to such Trusts are included in this Prospectus.
RATING
It is a condition to the issuance of the Securities of each Series
offered hereby and by the Prospectus Supplement that they shall have been rated
in one of the four highest rating categories by the nationally recognized
statistical rating agency or agencies specified in the related Prospectus
Supplement.
Ratings on mortgage pass-through securities address the likelihood of
receipt by securityholders of all distributions on the underlying mortgage
loans. These ratings address the structural, legal and issuer-related aspects
associated with such securities, the nature of the underlying mortgage loans and
the credit quality of the guarantor, if any. Ratings on mortgage pass-through
securities do not represent any assessment of the likelihood of principal
prepayments by mortgagors or of the degree by which such prepayments might
differ from those originally anticipated. As a result, securityholders might
suffer a lower than anticipated yield, and, in addition, holders of stripped
pass-through securities in extreme cases might fail to recoup their underlying
investments.
A rating of a security is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time by the
assigning rating organization. Each security rating should be evaluated
independently of any other security rating.
<PAGE>
INDEX OF PRINCIPAL TERMS
Unless the context indicates otherwise, the following terms shall have
the meanings set forth on the page indicated below:
Adjustable Rate.......................................................... 6
Adjusted Loan Remittance Rate............................................ 41
Agent of the SBA......................................................... 50
Agreements............................................................... 5
Amortization Period...................................................... 9
ARM...................................................................... 81
Auction Rate Securities.................................................. 2
Balloon Loans............................................................ 20
Bankruptcy Bond.......................................................... 14
Basis Risk Shortfall..................................................... 64
Buydown Funds............................................................ 65
CDC...................................................................... 27
Cede..................................................................... 4
Certificateholder........................................................ 2
Certificates............................................................. 1
Certified Lender......................................................... 26
Certified Lender Program................................................. 26
Class.................................................................... 2
Class R Certificates..................................................... 58
Cleanup Costs............................................................ 64
Code..................................................................... 17
Commission............................................................... 3
Compensating Interest.................................................... 16
Contingency Fee.......................................................... 54
Conventional Commercial Loan............................................. 27
Conventional Commercial Loan Program..................................... 27
Curtailment.............................................................. 16
Cut-Off Date............................................................. 36
Designated Depository Institution........................................ 53
Detailed Description..................................................... 24
Determination Date....................................................... 16
Distribution Account..................................................... 38
DTC...................................................................... 4
ERISA.................................................................... 18
Event of Nonpayment...................................................... 56
Federal Tax Counsel...................................................... 17
Final Determination...................................................... 58
Funding Period........................................................... 8
Guaranteed Interest...................................................... 26
Guaranteed Participant Program........................................... 26
Guaranty................................................................. 4
Guaranty Insurance Policy................................................ 13
Holders.................................................................. 2
Indenture................................................................ 5
Indirect Participant..................................................... 42
Insurance Proceeds....................................................... 16
Insurance Paying Agent................................................... 44
Insured Payment.......................................................... 13
Interest Rate............................................................ 2
IRS...................................................................... 58
LIBOR.................................................................... 2
Liquidation Proceeds..................................................... 16
Loan Guaranty Agreement.................................................. 26
Loan Note................................................................ 50
Loans.................................................................... 1
Lockout Periods.......................................................... 7
Lower Tier REMIC......................................................... 74
Majority Securityholders................................................. 56
Master Servicer.......................................................... 1
Monthly Advance.......................................................... 16
Mortgage................................................................. 50
Mortgage Interest Rate................................................... 6
Mortgage Pool............................................................ 89
Mortgage Pool Insurance Policy........................................... 14
Mortgaged Properties..................................................... 6
Multi-Party Agreement.................................................... 9
1933 Act................................................................. 3
Non-REMIC Certificates................................................... 18
Non-SBA Loans............................................................ 6
Noteholders.............................................................. 2
Notes.................................................................... 1
Originators.............................................................. 1
Participants............................................................. 42
Pass-Through Rate........................................................ 2
Permitted Instruments.................................................... 53
Permitted Investments.................................................... 47
Plan..................................................................... 88
Pool..................................................................... 1
Pooling and Servicing Agreement.......................................... 5
Pool Insurer............................................................. 45
Preferred Lender......................................................... 26
Preferred Lender Program................................................. 26
Pre-Funding Account...................................................... 8
Prepayment Assumption.................................................... 67
Prime Rate............................................................... 2
Principal and Interest Account........................................... 53
Prospectus Supplement.................................................... 1
Rating Agency............................................................ 15
REMIC.................................................................... 2
REMIC Certificates....................................................... 64
REMIC Regular Certificates............................................... 17
REMIC Residual Certificates.............................................. 17
REMIC Regulations........................................................ 65
Remittance Date.......................................................... 2
Representative........................................................... 1
Retained Interest........................................................ 10
Reserve Account.......................................................... 13
Revolving Period......................................................... 9
Sale and Servicing Agreement............................................. 5
SBA...................................................................... 6
SBA Act.................................................................. 7
SBA Loans................................................................ 1
SBA Rules and Regulations................................................ 54
SBA 504 Loans............................................................ 6
SBA 504 Loan Program..................................................... 17
SBA Section 7(a) Loans................................................... 6
Section 7(a) Program..................................................... 7
Section 7(a) Companion Loans............................................. 6
Securities............................................................... 1
Security Guaranty Insurer................................................ 44
Securityholder........................................................... 2
Security Register........................................................ 38
Senior Certificates...................................................... 10
Senior Notes............................................................. 12
Servicing Advance........................................................ 54
Servicing Fee............................................................ 54
SMMEA.................................................................... 18
Special Hazard Insurance Policy.......................................... 14
Special Hazard Insurer................................................... 46
Spread Amount............................................................ 13
Standard Hazard Insurance Policies....................................... 7
Strip Notes.............................................................. 12
Subordinated Certificates................................................ 10
Subordinated Notes....................................................... 12
Sub-Servicer............................................................. 55
Successor Servicer....................................................... 57
Superlien................................................................ 64
Supplemental Interest Payments........................................... 47
T-Bill Rate.............................................................. 2
Termination Notice....................................................... 58
Termination Price........................................................ 58
Tiered REMICs............................................................ 66
Trust ................................................................... 1
Trust Agreement.......................................................... 5
Trust Assets............................................................. 1
Trustee.................................................................. 17
Trustee's Document File.................................................. 50
UCC...................................................................... 42
Underwriters............................................................. 90
Unguaranteed Interests................................................... 1
United States person..................................................... 77
Variable Rate REMIC Regular Certificate.................................. 66
Yield Supplement Agreement............................................... 64
<PAGE>
APPENDIX I
AUCTION PROCEDURES
The following description of the Auction Procedures applies to each
Class of Auction Rate Securities (and may be different if otherwise set forth in
a related Prospectus Supplement). The term "Security," as used in this Appendix,
refers to each Class of Auction Rate Securities that are either Notes or
Certificates and the term "Securityholder" refers to Holders of Auction Rate
Securities.
DEFINITIONS
Capitalized terms used herein and not otherwise defined have the
meanings ascribed in the accompanying Prospectus and Prospectus Supplement.
Additionally, the following terms have the meanings ascribed to them:
"All Hold Rate" means ninety percent (90%) of One-Month LIBOR or such
other rate as may be set forth in the related Prospectus Supplement.
"Auction" means the implementation of the Auction Procedures on an
Auction Date.
"Auction Agent" means the initial auction agent under the initial
Auction Agent Agreement unless and until a substitute Auction Agent Agreement
becomes effective, after which "Auction Agent" shall mean the substitute auction
agent.
"Auction Agent Agreement" means the initial Auction Agent Agreement
unless and until a substitute Auction Agent Agreement is entered into, after
which "Auction Agent Agreement" shall mean such substitute Auction Agent
Agreement.
"Auction Agent Fee" has the meaning set forth in the Auction Agent
Agreement.
"Auction Agent Fee Rate" has the meaning set forth in the Auction
Agent Agreement.
"Auction Date" means, with respect to the Initial Period for each
Class of Securities, the date set forth in the related Prospectus Supplement and
thereafter, the Business Day immediately preceding the first day of each Auction
Period for each Security, other than:
(a) each Auction Period commencing after the ownership of the
Securities is no longer maintained in Book-Entry Form by DTC;
(B) each Auction Period commencing after and during the continuance
of an Event of Default; or
(C) each Auction Period commencing less than two Business Days after
the cure or waiver of an Event of Default.
Notwithstanding the foregoing, the Auction Date for one or more Auction Periods
may be changed pursuant to the related Agreement and the related Terms
Supplement, as described herein.
"Auction Period" means, with respect to each Security, the Interest
Period applicable to such Security during which time the applicable Security
Interest Rate is determined pursuant to the related Agreement and the related
Terms Supplement, which Auction Period (after the Initial Period for such
Security) initially shall consist of between 7 days and one year (as set forth
in the related Prospectus Supplement), as the same may be adjusted pursuant to
such related Agreement and the related Terms Supplement.
"Auction Period Adjustment" means an adjustment to the Auction Period
as provided in the related Terms Supplement, as described herein.
"Auction Procedures" means the procedures set forth in the related
Terms Supplement and described herein by which the Auction Rate applicable to a
Security is determined.
"Auction Rate" means, with respect to any Security, the rate of
interest per annum that results from the implementation of the Auction
Procedures and is determined as described in the related Agreement and the
related Terms Supplement and this Appendix I.
"Authorized Denominations" means, the dollar amount set forth in the
related Prospectus Supplement.
"Broker-Dealer" means the initial broker-dealer under the initial
Broker-Dealer Agreement or any other broker or dealer (each as defined in the
Securities Exchange Act of 1934, as amended), commercial bank or other entity
permitted by law to perform the functions required of a Broker-Dealer set forth
in the Auction Procedures that (a) is a Participant (or an affiliate of a
Participant), (b) has been appointed as such by the Representative and the
Trustee pursuant to the related Agreement and (c) has entered into a
Broker-Dealer Agreement that is in effect on the date of reference.
"Broker-Dealer Agreement" means each agreement between the Auction
Agent and a Broker-Dealer, and approved by Representative and the Trust,
pursuant to which the Broker-Dealer agrees to participate in Auctions as set
forth in the Auction Procedures, as from time to time amended or supplemented.
"Broker-Dealer Fee" has the meaning set forth in the Auction Agent
Agreement.
"Broker-Dealer Fee Rate" has the meaning set forth in the Auction
Agent Agreement.
"Effective Interest Rate" means, for any Loan and any collection
period, the per annum rate at which such Loan accrues interest during such
collection period.
"Existing Securityholder" means (i) with respect to and for the
purpose of dealing with the Auction Agent in connection with an Auction, a
Person who is a Broker-Dealer listed in the Existing Securityholder Registry at
the close of business on the Business Day immediately preceding such Auction and
(ii) with respect to and for the purpose of dealing with the Broker-Dealer in
connection with an Auction, a Person who is a beneficial owner of any Security.
"Existing Securityholder Registry" means the registry of Persons who
are owners of the Securities, maintained by the Auction Agent as provided in the
Auction Agent Agreement.
"Federal Funds Rate" means, for any date of determination, the federal
funds (effective) rate as published on page 118 of the Dow Jones Telerate
Service (or such other page as may replace that page on that service for the
purpose of displaying comparable rates or prices) on the immediately preceding
Business Day. If no such rate is published on such page on such date, "Federal
Funds Rate" shall mean for any date of determination, the Federal funds
(effective) rate as published by the Federal Reserve Board in the most recent
edition of Federal Reserve Statistical Release No. H.15 (519) that is available
on the Business Day immediately preceding such date.
"Initial Period" means, as to any Security, the period commencing on
the Closing Date of such Security and continuing through the day immediately
preceding the Security Initial Rate Adjustment Date for such Security.
"Interest Period" means, with respect to a Security, the Initial
Period for such Security and each period commencing on the Rate Adjustment Date
for such Security and ending on the day before (i) the next Rate Adjustment Date
for such Security or (ii) the final maturity date of such Security, as
applicable.
"Market Agent" means the entity named as market agent under the
related Agreement, or any successor to it in such capacity thereunder.
"Maximum Auction Rate" generally means (i) for Auction Periods of 34
days or less, either (a) the greater of (1) One-Month LIBOR plus 0.60% or (2)
the Federal Funds Rate plus 0.60% (if both ratings assigned by the Rating
Agencies to the applicable Security are "Aa3" or "AA-" or better) or
(B)One-Month LIBOR plus 1.50% (if any one of the ratings assigned by the Rating
Agencies to the Security is less than "Aa3" or "AA-") or (ii) for Auction
Periods of greater than or equal to 35 days, either (a) the greater of One-Month
LIBOR or Three-Month LIBOR, plus in either case, 0.60% (if both of the ratings
assigned by the Rating Agencies to the applicable Security are "Aa3" or "AA-" or
better) or (B) the greater of One-Month LIBOR or Three-Month LIBOR, plus in
either case, 1.50% (if any one of the ratings assigned by the Rating Agencies to
the applicable Security is less than "Aa3" or "AA-") or such other rate as may
be set forth in the related Prospectus Supplement. For purposes of the Auction
Agent and the Auction Procedures, the ratings referred to in this definition
shall be the last ratings of which the Auction Agent has been given notice
pursuant to the Auction Agent Agreement.
"Net Loan Rate" for any Interest Period will equal the weighted
average Effective Interest Rate for the Collection Period immediately preceding
such Interest Period less the amount set forth in the related Prospectus
Supplement.
"Non-Payment Rate" means One-Month LIBOR plus 1.50%, as the same may
be adjusted pursuant to a Terms Supplement or such other rate as may be set
forth in the related Prospectus Supplement.
"Person" means any individual, corporation, estate, partnership, joint
venture, association, joint stock company, trust (including any beneficiary
thereof), unincorporated organization or government or any agency or political
subdivision thereof.
"Potential Securityholder" means any Person (including an Existing
Securityholder that is (i) a Broker-Dealer when dealing with the Auction Agent
and (ii) a potential beneficial owner when dealing with a Broker-Dealer) who may
be interested in acquiring Securities (or, in the case of an Existing
Securityholder thereof, an additional principal amount of Securities).
"Rate Adjustment Date" means, with respect to each Security, the date
on which the applicable Security Interest Rate is effective and means, with
respect to each such Security, the date of commencement of each Auction Period.
"Rate Determination Date" means, with respect to any Security, the
Auction Date, or if no Auction Date is applicable to such Series, the Business
Day immediately preceding the date of commencement of an Auction Period.
"Security Initial Rate" means, with respect to any Class of Notes or
Certificates, the rate identified as such in the related Prospectus Supplement.
"Security Initial Rate Adjustment Date" means, with respect to any
Class of Notes, the date identified as such in the related Prospectus Supplement
and, with respect to any Class of Certificates, the date set forth in the
related Agreement or the related Terms Supplement.
"Three-Month LIBOR" means the London interbank offered rate for
deposits in U.S. dollars having a maturity of three months commencing on the
related LIBOR Determination Date (the "Three-Month Index Maturity") which
appears on Telerate Page 3750 as of 11:00 a.m., London time, on such LIBOR
Determination Date. If such rate does not appear on Telerate Page 3750, the rate
for that day will be determined on the basis of the rates at which deposits in
U.S. dollars, having the Three Month Index Maturity and in a principal amount of
not less than U.S. $1,000,000, are offered at approximately 11:00 a.m., London
time, on such LIBOR Determination Date to prime banks in the London interbank
market by the Reference Banks. The Auction Agent will request the principal
London office of each of such Reference Banks to provide a quotation of its
rate. If at least two such quotations are provided, the rate for that day will
be the arithmetic mean of the quotations. If fewer than two quotations are
provided, the rate for that day will be the arithmetic mean of the rates quoted
by major banks in New York City, selected by the Auction Agent, at approximately
11:00 a.m., New York City time, on such LIBOR Determination Date for loans in
U.S. dollars to leading European banks having the Three Month Index Maturity and
in a principal amount equal to an amount of not less than U.S. $1,000,000;
provided that if the banks selected as aforesaid are not quoting as mentioned in
this sentence, Three- Month LIBOR in effect for the applicable Interest Period
will be Three-Month LIBOR in effect for the previous Interest Period.
EXISTING SECURITYHOLDERS AND POTENTIAL SECURITYHOLDERS
Participants in each Auction will include: (1) "Existing
Securityholders," which shall mean any Securityholder according to the records
of the Auction Agent at the close of business on the Business Day preceding each
Auction Date; and (ii) "Potential Securityholders," which shall mean any person,
including any Existing Securityholder or a Broker/Dealer, who may be interested
in acquiring Securities (or, in the case of an Existing Securityholder, an
additional principal amount of the Security such Securityholder then holds). See
"--Broker-Dealer."
By purchasing a Security, whether in an Auction or otherwise, each
prospective purchaser of Securities or its Broker-Dealer must agree and will be
deemed to have agreed: (i) to participate in Auctions on the terms described
herein; (ii) so long as the beneficial ownership of the Securities is maintained
in Book-Entry Form to sell, transfer or otherwise dispose of the Securities only
pursuant to a Bid (as defined below) or a Sell Order (as defined below) in an
Auction, or to or through a Broker-Dealer, provided that in the case of all
transfers other than those pursuant to an Auction, the Existing Securityholder
of the Securities so transferred, its Participant or Broker-Dealer advises the
Auction Agent of such transfer; (iii) to have its beneficial ownership of
Securities maintained at all times in Book-Entry Form for the account of its
Participant, which in turn will maintain records of such beneficial ownership,
and to authorize such Participant to disclose to the Auction Agent such
information with respect to such beneficial ownership as the Auction Agent may
request; (iv) that a Sell Order placed by an Existing Securityholder will
constitute an irrevocable offer to sell the principal amount of the Security
specified in such Sell Order; (v) that a Bid placed by an Existing
Securityholder will constitute an irrevocable offer to sell the principal amount
of the Security specified in such Bid if the rate specified in such Bid is
greater than, or in some cases equal to, the Security Interest Rate of such
Security, determined as described herein; and (vi) that a Bid placed by a
Potential Securityholder will constitute an irrevocable offer to purchase the
amount, or a lesser principal amount, of the Security specified in such Bid if
the rate specified in such Bid is, respectively, less than or equal to the
Security Interest Rate of the specified Security, determined as described
herein.
The principal amount of the Securities purchased or sold may be
subject to probation procedures on the Auction Date. Each purchase or sale of
Securities on the Auction Date will be made for settlement on the first day of
the Interest Period immediately following such Auction Date at a price equal to
100% of the principal amount thereof, plus accrued but unpaid interest thereon.
The Auction Agent is entitled to rely upon the terms of any Order submitted to
it by a Broker-Dealer.
Auction Agent
The entity named in the related Prospectus Supplement, will be
appointed as Auction Agent to serve as agent for a Trust in connection with
Auctions. The Trustee and the Representative will enter into the Auction
Agreement with the Auction Agent. Any Auction Agent or Substitute Auction Agent
will be (i) a bank, national banking association or trust company duly organized
under the laws of the United States of America or any state or territory thereof
having its principal place of business in the Borough of Manhattan, New York, or
such other location as approved by the Trustee and the Market Agent in writing
and having a combined capital stock or surplus of at least $50,000,000, or (ii)
a member of the National Association of Securities Dealers, Inc. having a
capitalization of at least $50,000,000, and, in either case, authorized by law
to perform all the duties imposed upon it under the related Agreement and under
the Auction Agent Agreement. The Auction Agent may at any time resign and be
discharged of the duties and obligations created by the related Agreement by
giving at least 90 days notice to the Trustee, the Trust, the Representative and
the Market Agent. The Auction Agent may be removed at any time by the Trustee
upon the written direction of the Security Guaranty Insurer, if applicable, or,
with the consent of the Security Guaranty Insurer, if applicable, the
Securityholders of 66B% of the aggregate principal amount of the Securities then
outstanding, by an instrument signed by the Security Guaranty Insurer, if
applicable, or such Securityholders or their attorneys and filed with the
Auction Agent, the Representative, the Trustee and the Market Agent upon at
least 90 days' notice. Neither resignation nor removal of the Auction Agent
pursuant to the preceding two sentences will be effective until and unless a
Substitute Auction Agent has been appointed and has accepted such appointment.
If required by the Trust or the Representative or by the Market Agent, with the
Trust's and the Representative's consent, a Substitute Auction Agent Agreement
shall be entered into with a Substitute Auction Agent. Notwithstanding the
foregoing, the Auction Agent may terminate the Auction Agent Agreement if,
within 25 days after notifying the Trustee, the Trust, the Representative, the
Security Guaranty Insurer, if applicable, and the Market Agent in writing that
it has not received payment of any Auction Agent Fee due it in accordance with
the terms of the Auction Agent Agreement, the Auction Agent does not receive
such payment.
If the Auction Agent should resign or be removed or be dissolved, or
if the property or affairs of the Auction Agent shall be taken under the control
of any state or federal court or administrative body because of bankruptcy or
insolvency, or for any other reason, the Trustee, at the direction of the
Representative (after receipt of a certificate from the Market Agent confirming
that any proposed Substitute Auction Agent meets the requirements described in
the immediately preceding paragraph above), shall use its best efforts to
appoint a Substitute Auction Agent.
The Auction Agent is acting as agent for the Trust in connection with
Auctions. In the absence of bad, faith, negligent failure to act or negligence
on its part, the Auction Agent will not be liable for any action taken, suffered
or omitted or any error of judgment made by it in the performance of its duties
under the Auction Agent Agreement and will not be liable for any error of
judgment made in good faith unless the Auction Agent will have been negligent in
ascertaining (or failing to ascertain) the pertinent facts.
The Trustee will pay the Auction Agent the Auction Agent Fee on the
Note Remittance Date or Certificate Remittance Date set forth in the related
Prospectus Supplement, and will reimburse the Auction Agent upon its request for
all reasonable expenses, disbursements and advances incurred or made by the
Auction Agent in accordance with any provision of the Auction Agent Agreement or
the Broker-Dealer Agreements (including the reasonable compensation and the
expenses and disbursements of its agents and counsel). The Trust will indemnify
and hold harmless the Auction Agent for and against any loss, liability or
expense incurred without negligence or bad faith on the Auction Agent's part,
arising out of or in connection with the acceptance or administration of its
agency under the Auction Agent Agreement and the Broker-Dealer Agreements
including the reasonable costs and expenses (including the reasonable fees and
expenses of its counsel) of defending itself against any such claim or liability
in connection with its exercise or performance of any of its respective duties
thereunder and of enforcing this indemnification provision; provided that the
Trust will not indemnify the Auction Agent as described in this paragraph for
any fees and expenses incurred by the Auction Agent in the normal course of
performing its duties under the Auction Agent Agreement and under the
Broker-Dealer Agreements, such fees and expenses being payable as described
above.
Broker-Dealer
Existing Securityholders and Potential Securityholders may participate
in Auctions only by submitting orders (in the manner described below) through a
"Broker-Dealer," including the Broker-Dealer, as the sole Broker-Dealer or any
other broker or dealer (each as defined in the Securities Exchange Act of 1934,
as amended), commercial bank or other entity permitted by law to perform the
functions required of a Broker-Dealer set forth below which (i) is a Participant
or an affiliate of a Participant, (ii) has been selected by the Trust and (iii)
has entered into a Broker-Dealer Agreement with the Auction Agent that remains
effective, in which the Broker-Dealer agrees to participate in Auctions as
described in the Auction Procedures, as from time to time amended or
supplemented.
The Broker-Dealers are entitled to a Broker-Dealer Fee, which is
payable by the Auction Agent from monies received from the Trustee, on the Note
Remittance Date or Certificate Remittance Date set forth in the related
Prospectus Supplement.
Market Agent
In connection with each Series of Notes and the Certificates, the
"Market Agent," will act solely as agent of the Trust and will not assume any
obligation or relationship of agency or trust for or with any of the
Securityholders.
AUCTION PROCEDURES
General
Pursuant to the related Agreement and the related Terms Supplement,
Auctions to establish the Auction Rate for each Security issued by the Trust
will be held on each applicable Auction Date, except as described below, by
application of the Auction Procedures described herein. Such procedures are to
be applicable separately to each Class of Notes and each Class of Certificates.
The Auction Agent will calculate the Maximum Auction Rate, the All
Hold Rate and One-Month LIBOR or Three-Month LIBOR, as the case may be, on each
Auction Date. The Administrator will calculate and, no later than the Business
Day preceding each Auction Date, will report to the Auction Agent in writing,
the Net Loan Rate. If the ownership of a Security is no longer maintained in
Book-Entry Form, the Trustee will calculate the Maximum Auction Rate, and
Administrator will report to the Trustee in writing the Net Loan Rate, on the
Business Day immediately preceding the first day of each Interest Period
commencing after delivery of such Security. If an Event of Default has occurred,
under the Indenture or the Pooling and Servicing Agreement, as applicable, the
Trustee will calculate the Non-Payment Rate on the Rate Determination Date for
(i) each Interest Period commencing after the occurrence and during the
continuance of such Payment Default and (ii) any Interest Period commencing less
than two Business Days after the cure of any Event of Default. The Auction Agent
will determine One-Month LIBOR or the Three-Month LIBOR, as applicable, for each
Interest Period other than the Initial Period for a Security; provided, that if
the ownership of the Securities is no longer maintained in Book-Entry Form, or
if an Event of Default has occurred, then the Trustee will determine the
One-Month LIBOR or the Three-Month LIBOR, as applicable, for each such Interest
Period. The determination by the Trustee or the Auction Agent, as the case may
be, of the One-Month LIBOR or the Three-Month LIBOR, as applicable, will (in the
absence of manifest error) be final and binding upon the Securityholders and all
other parties. If calculated or determined by the Auction Agent, the Auction
Agent will promptly advise the Trustee of the One-Month LIBOR or the Three-Month
LIBOR, as applicable.
Submission of Orders
So long as the ownership of the Securities is maintained in Book-Entry
Form, an Existing Securityholder may sell, transfer or otherwise dispose of
Securities only pursuant to a Bid or Sell Order (as hereinafter defined) placed
in an Auction or through a Broker-Dealer, provided that, in the case of all
transfers other than pursuant to Auctions, such Existing Securityholder, its
Broker-Dealer or its Participant advises the Auction Agent of such transfer.
Auctions for each Class of Notes and each Class of Certificates will be
conducted on each applicable Auction Date, if there is an Auction Agent on such
Auction Date, in the following manner (such procedures to be applicable
separately to each Class of Notes and each Class of Certificates).
Prior to the Submission Deadline (defined as 1:00 p.m., eastern time,
on any Auction Date or such other time on any Auction Date by which
Broker-Dealers are required to submit Orders to the Auction Agent as specified
by the Auction Agent from time to time) on each Auction Date relating to a
Security:
(a) each Existing Securityholder of the applicable Security may submit
to a Broker-Dealer by telephone or otherwise information as to: (i) the
principal amount and Class of outstanding Securities, if any, held by such
Existing Securityholder which such Existing Securityholder desires to continue
to hold without regard to the Security Interest Rate for such Securities for the
next succeeding Auction Period (a "Hold Order"); (ii) the principal amount and
Class of outstanding Securities, if any, which such Existing Securityholder
offers to sell if the Security Interest Rate for such Securities for the next
succeeding Auction Period will be less than the rate per annum specified by such
Existing Securityholder (a "Bid"); and/or (iii) the principal amount and Class
of outstanding Securities, if any, held by such Existing Securityholder which
such Existing Securityholder offers to sell without regard to the Security
Interest Rate for such Securities for the next succeeding Auction Period (a
"Sell Order"); and
(b) one or more Broker-Dealers may contact Potential Securityholders
to determine the principal amount and Class of Securities which each such
Potential Securityholder offers to purchase, if the Security Interest Rate for
such Securities for the next succeeding Auction Period will not be less than the
rate per annum specified by such Potential Securityholder (also a "Bid").
Each Hold Order, Bid and Sell Order will be an "Order." Each Existing
Securityholder and each Potential Securityholder placing an Order is referred to
as a "Bidder."
Subject to the provisions described below under "Validity of Orders,"
a Bid by an Existing Securityholder will constitute an irrevocable offer to
sell: (i) the principal amount and Class of the outstanding Securities specified
in such Bid if the Security Interest Rate for such Securities will be less than
the rate specified in such Bid, (ii) such principal amount or a lesser principal
amount and Class of the outstanding Securities to be determined as described
below in "Acceptance and Rejection of Orders," if the Security Interest Rate for
such Securities will be equal to the rate specified in such Bid or (iii) such
principal amount or a lesser principal amount of the then outstanding Securities
to be determined as described below under "Acceptance and Rejection of Orders,"
if the rate specified therein will be higher than the Security Interest Rate for
such Securities and Sufficient Bids (as defined below) have not been made.
Subject to the provisions described below under "Validity of Orders,"
a Sell Order by an Existing Securityholder will constitute an irrevocable offer
to sell: (i) the principal amount of the Security specified in such Sell Order
or (ii) such principal amount or a lesser principal amount of outstanding
Securities of the specified Security as described below under "Acceptance and
Rejection of Orders," if Sufficient Bids have not been made.
Subject to the provisions described below under "Validity of Orders,"
a Bid by a Potential Securityholder will constitute an irrevocable offer to
purchase: (i)the principal amount of the Security specified in such Bid if the
Security Interest Rate for such Securities will be higher than the rate
specified in such Bid or (ii) such principal amount or a lesser principal amount
of such Securities as described below in "Acceptance and Rejection of Orders,"
if the Security Interest Rate is equal to the rate specified in such Bid.
Each Broker-Dealer will submit in writing to the Auction Agent prior
to the Submission Deadline on each Auction Date all Orders obtained by such
Broker-Dealer and will specify with respect to each such Order: (i) the name of
the Bidder placing such Order; (ii) the aggregate principal amount and Class of
Security that are the subject of such Order; (iii) to the extent that such
Bidder is an Existing Securityholder: (a) the principal amount and Class of
Securities, if any, subject to any Hold Order placed by such Existing
Securityholder; (b) the principal amount, and Class of Securities, if any,
subject to any Bid placed by such Existing Securityholder and the rate specified
in such Bid; and (c) the principal amount, and Class of Securities, if any,
subject to any Sell Order placed by such Existing Securityholder, and (iv) to
the extent such Bidder is a Potential Securityholder, the rate specified in such
Potential Securityholder's Bid.
If any rate specified in any Bid contains more than three figures to
the right of the decimal point, the Auction Agent will round such rate up to the
next highest one-thousandth (.001) of one percent.
If an Order or Orders covering all Securities of the applicable Class
held by any Existing Securityholder are not submitted to the Auction Agent prior
to the Submission Deadline, the Auction Agent will deem a Hold Order to have
been submitted on behalf of such Existing Securityholder covering the principal
amount of Securities held by such Existing Securityholder and not subject to an
Order submitted to the Auction Agent.
Neither the Trust, the Representative, the Trustee nor the Auction
Agent will be responsible for any failure of a Broker-Dealer to submit an Order
to the Auction Agent on behalf of any Existing Securityholder or Potential
Securityholder.
An Existing Securityholder may submit multiple Orders, of different
types and specifying different rates, in an Auction with respect to Securities
then held by such Existing Securityholder. An Existing Securityholder that
offers to purchase additional Securities is, for purposes of such offer, treated
as a Potential Securityholder.
Any Bid specifying a rate higher than the Maximum Auction Rate will
(i) be treated as a Sell Order if submitted by a Existing Securityholder and
(ii) not be accepted if submitted by a Potential Securityholder.
Validity of Orders
If any Existing Securityholder submits through a Broker-Dealer to the
Auction Agent one or more Orders covering in the aggregate more than the
principal amount of the Class of Securities held by such Existing
Securityholder, such Orders will be considered valid as follows and in the order
of priority described below.
HOLD ORDERS. All Hold Orders will be considered valid, but only up to
the aggregate principal amount of the Class of Securities held by such Existing
Securityholder, and if the aggregate principal amount of the Class of Securities
subject to such Hold Orders exceeds the aggregate principal amount of the Class
of Securities held by such Existing Securityholder, the aggregate principal
amount of the Class of Securities subject to each such Hold Order will be
reduced pro rata so that the aggregate principal amount of the Class of
Securities subject to all such Hold Orders equals the aggregate principal amount
of the Class of Securities held by such Existing Securityholder.
BIDS. Any Bid will be considered valid up to an amount equal to the
excess of the principal amount of the Class of Securities held by such Existing
Securityholder over the aggregate principal amount of such Security, subject to
any Hold Orders referred to above. Subject to the preceding sentence, if
multiple Bids with the same rate are submitted on behalf of such Existing
Securityholder and the aggregate principal amount of Securities subject to such
Bids is greater than such excess, such Bids will be considered valid up to an
amount equal to such excess. Subject to the two preceding sentences, if more
than one Bid with different rates are submitted on behalf of such Existing
Securityholder, such Bids will be considered valid first in the ascending order
of their respective rates until the highest rate is reached at which such excess
exists and then at such rate up to the amount of such excess. In any event, the
aggregate principal amount of Securities, if any, subject to Bids not valid
under the provisions described above will be treated as the subject of a Bid by
a Potential Securityholder at the rate therein specified.
SELL ORDERS. All Sell Orders will be considered valid up to an amount
equal to the excess of the principal amount of Securities of the Class held by
such Existing Securityholder over the aggregate principal amount of Securities
subject to valid Hold Orders and valid Bids as referred to above.
If more than one Bid for a Class of Security is submitted on behalf of
any Potential Securityholder, each Bid submitted will be a separate Bid with the
rate and principal amount therein specified. Any Bid or Sell Order submitted by
an Existing Securityholder covering an aggregate principal amount of Securities
not equal to an Authorized Denomination or an integral multiple thereof will be
rejected and will be deemed a Hold Order. Any Bid submitted by a Potential
Securityholder covering an aggregate principal amount of Securities not equal to
an Authorized Denomination or an integral multiple thereof will be rejected. Any
Order submitted in an Auction by a Broker-Dealer to the Auction Agent prior to
the Submission Deadline on any Auction Date will be irrevocable.
A Hold Order, a Bid or a Sell Order that has been determined valid
pursuant to the procedures described above is referred to as a "Submitted Hold
Order," a "Submitted Bid" and a "Submitted Sell Order," respectively
(collectively, "Submitted Orders").
Determination of Sufficient Bid and Bid Auction Rate
Not earlier than the Submission Deadline on each Auction Date, the
Auction Agent will assemble all valid Submitted Orders and will determine:
(a) for the applicable Security, the excess of the total principal
amount of such Securities over the sum of the aggregate principal amount of such
Securities subject to Submitted Hold Orders (such excess being hereinafter
referred to as the "Available Securities"); and
(b) from such Submitted Orders whether the aggregate principal amount
of Securities of such Class subject to Submitted Bids by Potential
Securityholders specifying one or more rates equal to or lower than the Maximum
Auction Rate exceeds or is equal to the sum of (i) the aggregate principal
amount of Securities of such Class subject to Submitted Bids by Existing
Securityholders specifying one or more rates higher than the Maximum Auction
Rate and (ii) the aggregate principal amount of Securities of such Class subject
to Submitted Sell Orders (in the event such excess or such equality exists other
than because all of the Securities are subject to Submitted Hold Orders, such
Submitted Bids by Potential Securityholders above will be hereinafter referred
to collectively as "Sufficient Bids"); and
(c) if Sufficient Bids exist, the "Bid Auction Rate," which will be
the lowest rate specified in such Submitted Bids such that if:
(i) each such Submitted Bid from Existing
Securityholders of such Security specifying such lowest rate
and all other Submitted Bids from Existing Securityholders of
such Security specifying lower rates were rejected (thus
entitling such Existing Securityholders to continue to hold the
principal amount of Securities subject to such Submitted Bids);
and
(ii) each such Submitted Bid from Potential
Securityholders of such Security specifying such lowest rate
and all other Submitted Bids from Potential Securityholders
specifying lower rates, were accepted, the result would be that
such Existing Securityholders described in subparagraph (c)(i)
above would continue to hold an aggregate principal amount of
Securities which, when added to the aggregate principal amount
of Securities to be purchased by such Potential Securityholders
described in this subparagraph (ii) would equal not less than
the Available Securities.
Determination of Auction Rate and Security Interest Rate, Notice
Promptly after the Auction Agent has made the determinations described
above, the Auction Agent is to advise the Trustee of the Net Loan Rate, the
Maximum Auction Rate, the All Hold Rate and the components thereof on the
Auction Date, and based on such determinations, the Auction Rate for the next
succeeding Interest Period for the applicable Security as follows:
(a) if Sufficient Bids exist, that the Auction Rate for the next
succeeding Interest Period will be equal to the Bid Auction Rate so determined;
(b) if Sufficient Bids do not exist (other than because all of the
Securities of the applicable Security are subject to Submitted Hold Orders),
that the Auction Rate for the next succeeding Interest Period will be equal to
the Maximum Auction Rate; or
(c) if all Securities of the applicable Security are subject to
Submitted Hold Orders, that the Auction Rate for the next succeeding Interest
Period will be equal to the All Hold Rate.
Promptly after the Auction Agent has determined the Auction Rate, the
Auction Agent will determine and advise the Trustee of the Security Interest
Rate for each applicable Security, which rate will be the lesser of (a) the
Auction Rate for each such Security and (b) the Net Loan Rate. In no event shall
a Security Interest Rate exceed the rate (the "Security Interest Rate
Limitation") set forth in the related Prospectus Supplement.
Acceptance and Rejection of Orders
Existing Securityholders of the applicable Security will continue to
hold the principal amount of Securities of such Class that are subject to
Submitted Hold Orders. If, with respect to a Security, the Net Loan Rate is
equal to or greater than the Bid Auction Rate and if Sufficient Bids, as
described above under "Determination of Sufficient Bids and Bid Auction Rate,"
have been received by the Auction Agent, the Bid Auction Rate will be the
Security Interest Rate, and Submitted Bids and Submitted Sell Orders will be
accepted or rejected and the Auction Agent will take such other action as
provided in the related Agreement and described below under "Sufficient Bids."
If the Net Loan Rate is less than the Auction Rate, the Security
Interest Rate will be the Net Loan Rate. If the Auction Rate and the Net Loan
Rate are both greater than the Security Interest Rate Limitation, the Security
Interest Rate for each series shall be equal to the Security Interest Rate
Limitation. If the Auction Agent has not received Sufficient Bids as described
above under "Determination of Sufficient Bids and Bid Auction Rate" (other than
because all of the Securities are subject to Submitted Holds Orders), the
Security Interest Rate will be the lesser of the Maximum Auction Rate or the Net
Loan Rate. In any of the cases described above in this paragraph, Submitted
Orders will be accepted or rejected and the Auction Agent will take such other
action as described below under "Insufficient Bids."
SUFFICIENT BIDS. If Sufficient Bids have been made with a respect to a
Security and the Net Loan Rate is equal to or greater than the Bid Auction Rate
(in which case the Interest Rate shall be the Bid Auction Rate), all Submitted
Sell Orders will be accepted and, subject to the denomination requirements
described below, Submitted Bids will be accepted or rejected as follows in the
following order of priority and all other Submitted Bids will be rejected:
(a) Existing Securityholders' Submitted Bids specifying any rate that
is higher than the Security Interest Rate will be accepted, thus requiring each
such Existing Securityholder to sell the aggregate principal amount of
Securities subject to such Submitted Bids;
(b) Existing Securityholders' Submitted Bids specifying any rate that
is lower than the Security Interest Rate will be rejected, thus entitling each
such Existing Securityholder to continue to hold the aggregate principal amount
of Securities subject to such Submitted Bids;
(c) Potential Securityholders' Submitted Bids specifying any rate that
is lower than the Security Interest Rate will be accepted;
(d) Each Existing Securityholder's Submitted Bid specifying a rate
that is equal to the Security Interest Rate will be rejected, thus entitling
such Existing Securityholder to continue to hold the aggregate principal amount
of Securities subject to such Submitted Bid, unless the aggregate principal
amount of Securities subject to such Submitted Bids will be greater than the
principal amount of Securities (the "remaining principal amount") equal to the
excess of the Available Securities over the aggregate principal amount of
Securities subject to Submitted Bids described in subparagraphs (b) and (c)
above, in which event such Submitted Bid of such Existing Securityholder will be
rejected in part and such Existing Securityholder will be entitled to continue
to hold the principal amount of Securities subject to such Submitted Bid, but
only in an amount equal to the aggregate principal amount of Securities obtained
by multiplying the remaining principal amount by a fraction, the numerator of
which will be the principal amount of Securities held by such Existing
Securityholder subject to such Submitted Bid and the denominator of which will
be the sum of the principal amount of Securities subject to such Submitted Bids
made by all such Existing Securityholders that specified a rate equal to the
Security Interest Rate; and
(e) Each Potential Securityholder's Submitted Bid specifying a rate
that is equal to the Security Interest Rate will be accepted, but only in an
amount equal to the principal amount of Securities obtained by multiplying the
excess of the aggregate principal amount of Available Securities over the
aggregate principal amount of Securities subject to Submitted Bids described in
subparagraphs (b), (c) and (d) above by a fraction, the numerator of which will
be the aggregate principal amount of Securities subject to such Submitted Bid
and the denominator of which will be the sum of the principal amount of
Securities subject to Submitted Bids made by all such Potential Securityholders
that specified a rate equal to the Security Interest Rate.
INSUFFICIENT BIDS. If Sufficient Bids have not been made with respect
to a Security (other than because all of the Securities of such Class are
subject to Submitted Hold Orders) or if the Net Loan Rate is less than the Bid
Auction Rate (in which case the Security Interest Rate shall be the Net Loan
Rate) or if the Security Interest Rate Limitation applies, subject to the
denomination requirements described below, Submitted Orders will be accepted or
rejected as follows in the following order of priority and all other Submitted
Bids will be rejected:
(a) Existing Securityholders' Submitted Bids specifying any rate that
is equal to or lower than the Security Interest Rate will be rejected, thus
entitling such Existing Securityholders to continue to hold the aggregate
principal amount of Securities subject to such Submitted Bids;
(b) Potential Securityholders' Submitted Bids specifying any rate that
is equal to or lower than the Security Interest Rate will be accepted, and
specifying any rate that is higher than the Security Interest Rate will be
rejected; and
(c) each Existing Securityholder's Submitted Bid specifying any rate
that is higher than the Security Interest Rate and the Submitted Sell Order of
each Existing Securityholder will be accepted, thus entitling each Existing
Securityholder that submitted any such Submitted Bid or Submitted Sell Order to
sell the Securities subject to such Submitted Bid or Submitted Sell Order, but
in both cases only in an amount equal to the aggregate principal amount of
Securities obtained by multiplying the aggregate principal amount of Securities
subject to Submitted Bids described in subparagraph (b)above by a fraction, the
numerator of which will be the aggregate principal amount of Securities held by
such Existing Securityholder subject to such Submitted Bid or Submitted Sell
Order and the denominator of which will be the aggregate principal amount of
Securities subject to all such Submitted Bids and Submitted Sell Orders.
ALL HOLD ORDERS. If all Securities of a Class are subject to Submitted
Hold Orders, all Submitted Bids will be rejected.
AUTHORIZED DENOMINATIONS REQUIREMENT. If, as a result of the
procedures described above regarding Sufficient Bids and Insufficient Bids, any
Existing Securityholder would be entitled or required to sell, or any Potential
Securityholder would be entitled or required to purchase, a principal amount of
Securities that is not equal to an Authorized Denomination or an integral
multiple thereof, the Auction Agent will, in such manner as in its sole
discretion it will determine, round up or down the principal amount of
Securities to be purchased or sold by any Existing Securityholder or Potential
Securityholder so that the principal amount of Securities purchased or sold by
each Existing Securityholder or Potential Securityholder will be equal to an
Authorized Denomination or an integral multiple in excess thereof. If, as a
result of the procedures described above regarding Insufficient Bids, any
Potential Securityholder would be entitled or required to purchase less than a
principal amount of Securities equal to an Authorized Denomination or any
integral multiple thereof, the Auction Agent will, in such manner as in its sole
discretion it will determine, allocate Securities for purchase among Potential
Securityholders so that only Securities in an Authorized Denomination or any
integral multiples in excess thereof are purchased by any Potential
Securityholder, even if such allocation results in one or more of such Potential
Securityholders not purchasing any Securities.
Based on the results of each Auction, the Auction Agent is to
determine the aggregate principal amount of Securities of each Class to be
purchased and the aggregate principal amount of Securities of each Class to be
sold by Potential Securityholders and Existing Securityholders on whose behalf
each Broker-Dealer submitted Bids or Sell Orders and, with respect to each
Broker-Dealer, to the extent that such aggregate principal amount of Securities
to be sold differs from such aggregate principal amount of Securities to be
purchased, determine to which other Broker-Dealer or Broker-Dealers acting for
one or more purchasers such Broker-Dealer will deliver, or from which
Broker-Dealers acting for one or more sellers such Broker-Dealer will receive,
as the case may be, Securities.
Any calculation by the Auction Agent (or the Trustee, if applicable)
of the Security Interest Rate, One-Month LIBOR, Three-Month LIBOR, the Maximum
Auction Rate, the All Hold Rate, the Net Loan Rate and the Non-Payment Rate
will, in the absence of manifest error, be binding on all other parties.
Notwithstanding anything in any related Agreement or, a related Terms
Supplement to the contrary, no Auction is to be held on any Auction Date on
which there are insufficient moneys held by the Trustee under the related
Agreement and available to pay the principal of and interest due on the
applicable Security on the Note Remittance Date or Certificate Remittance Date
immediately following such Auction Date.
Settlement Procedures
The Auction Agent is required to advise each Broker-Dealer that
submitted an Order in an Auction of the Security Interest Rate for a Security
for the next Interest Period and, if such Order was a Bid or Sell Order, whether
such Bid or Sell Order was accepted or rejected, in whole or in part, by
telephone not later than 3:00 p.m., eastern time, on the Auction Date if the
Interest Rate is the Auction Rate and not later than 4:00 p.m. eastern time on
the Auction Date if the Interest Rate is the Net Loan Rate. Each Broker-Dealer
that submitted an Order on behalf of a Bidder is required to then advise such
Bidder of the applicable Security Interest Rate for the next Interest Period
and, if such Order was a Bid or a Sell Order, whether such Bid or Sell Order was
accepted or rejected, in whole or in part, confirm purchases and sales with each
Bidder purchasing or selling Securities as a result of the Auction and advise
each Bidder purchasing or selling Securities as a result of the Auction to give
instructions to its Participant to pay the purchase price against delivery of
such Securities or to deliver such Securities against payment therefor, as
appropriate. Pursuant to the Auction Agent Agreement, the Auction Agent is to
record each transfer of Securities on the Existing Securityholders Registry to
be maintained by the Auction Agent.
In accordance with DTC's normal procedures, on the Business Day after
the Auction Date, the transactions described above will be executed through DTC,
so long as DTC is the depository, and the accounts of the respective
Participants at DTC will be debited and credited and Securities delivered as
necessary to effect the purchases and sales of Securities as determined in the
Auction. Purchasers are required to make payment through their Participants in
same-day funds to DTC against delivery through their Participants. DTC will make
payment in accordance with its normal procedures, which now provide for payment
against delivery by its Participants in immediately available funds.
If any Existing Securityholder selling Securities in an Auction fails
to deliver such Securities, the Broker-Dealer of any person that was to have
purchased Securities in such Auction may deliver to such person a principal
amount of Securities that is less than the principal amount of Securities that
otherwise was to be purchased by such person but in any event equal to an
Authorized Denomination or any integral multiple thereof. In such event, the
principal amount of Securities to be delivered will be determined by such
Broker-Dealer. Delivery of such lesser principal amount of Securities will
constitute good delivery. Neither the Trustee nor the Auction Agent will have
any responsibility or liability with respect to the failure of a Potential
Securityholder, Existing Securityholder or their respective Broker-Dealer or
Participant to deliver the principal amount of Securities or to pay for the
Securities purchased or sold pursuant to an Auction or otherwise. For a further
description of the settlement procedures, see "SETTLEMENT PROCEDURES."
TRUSTEE NOT RESPONSIBLE FOR AUCTION AGENT, MARKET AGENT AND BROKER-DEALERS
The Trustee shall not be liable or responsible for the actions of or
failure to act by the Auction Agent, Market Agent or any Broker-Dealer under the
related Agreement, the related Terms Supplement or under the Auction Agent
Agreement, the Market Agent Agreement or any Broker-Dealer Agreement. The
Trustee may conclusively rely upon any information required to be furnished by
the Auction Agent, the Market Agent or any Broker-Dealer without undertaking any
independent review or investigation of the truth or accuracy of such
information.
CHANGES IN AUCTION TERMS
Changes in Auction Period or Periods
While any of the Securities are outstanding, the Administrator, may,
from time to time, change the length of the one or more Auction Periods in order
to conform with then current market practice with respect to similar securities
or to accommodate economic and financial factors that may affect or be relevant
to the length of the Auction Period and the interest rate borne by the
Securities (an "Auction Period Adjustment"). The Administrator will not initiate
such change in the length of the Auction Period unless it shall have received
the written consent from the Market Agent, which consent will not be
unreasonably withheld, not less than three days nor more than 20 days prior to
the effective date of an Auction Period Adjustment. The Administrator will
initiate an Auction Period Adjustment by giving written notice to the Trustee,
the Auction Agent, the Market Agent, the Security Guaranty Insurer and DTC in
substantially the form of, or containing substantially the information contained
in, the related Agreement at least 10 days prior to the Auction Date for such
Auction Period.
Any such Auction Period Adjustment shall not result in an Auction
Period of less than 7 days nor more than 91 days. If any such Auction Period
Adjustment will result in an Auction Period of less than the number of days in
the then current Auction Period, the notice described above will be effective
only if it is accompanied by a written statement of the Trustee, the Auction
Agent and DTC to the effect that they are capable of performing their duties, if
any, under the related Agreement, the Auction Agent Agreement and any
Broker-Dealer Agreement with respect to such changed Auction Period.
An Auction Period Adjustment will take effect only if (a) the Trustee
and the Auction Agent receive, by 11:00 a.m., eastern time, on the Business Day
before the Auction Date for the first such Auction Period, a certificate from
the Representative authorizing an Auction Period Adjustment specified in such
certificate, the certificate of the Market Agent described above and the written
statement of the Trustee, the Auction Agent DTC described above and (B)
Sufficient Bids exist at the Auction on the Auction Date for such first Auction
Period. If the condition referred to in (a) is not met, the Security Interest
Rate applicable for the next Auction Period will be determined pursuant to the
Auction Procedures and the Auction Period will be the Auction Period determined
without reference to the proposed change. If the condition referred to in (a) is
met, but the condition referred to in (B) above is not met, the Security
Interest Rate applicable for the next Auction Period will be the lesser of the
Maximum Auction Rate and the Net Loan Rate and the Auction Period will be the
Auction Period determined without reference to the proposed change.
Changes in the Auction Date
The Market Agent, at the written direction of the Representative, may
specify an earlier Auction Date (but in no event more than five Business Days
earlier) than the Auction Date that would otherwise be determined in accordance
with the definition of "Auction Date" with respect to one or more specified
Auction Periods in order to conform with then current market practice with
respect to similar securities or to accommodate economic and financial factors
that may affect or be relevant to the day of the week constituting an Auction
Date and the interest rate borne on the Securities. The Representative will not
consent to such change in the Auction Date unless the Representative will have
received from the Market Agent not less than three days nor more than 20 days
prior to the effective date of such change a written request for consent
together with a certificate demonstrating the need for change in reliance on
such factors. The Market Agent will provide notice of its determination to
specify an earlier Auction Date for one or more Auction Periods by means of a
written notice delivered at least 10 days prior to the proposed changed Auction
Date to the Trustee, the Auction Agent, the Trust, the Representative, and DTC.
The changes in Auction terms described above may be made with respect
to any Class of the Securities. In connection with any change in Auction Terms
described above, the Auction Agent is to provide such further notice to such
parties as is specified in the Auction Agent Agreement.
<PAGE>
APPENDIX II
SETTLEMENT PROCEDURES
These Settlement Procedures apply separately to each Class of
Securities and may be different if specified in the related Prospectus
Supplement.
(a) Not later than (i) 3:00 p.m. if the Security Interest Rate is the
Auction Rate or (2) 4:00 p.m. if the Security Interest Rate is the Net Loan
Rate, the Auction Agent is to notify by telephone each Broker-Dealer that
participated in the Auction held on such Auction Date and submitted an Order on
behalf of an Existing Securityholder or Potential Securityholder of:
(i) the Security Interest Rate fixed for the next Interest
Period;
(ii) whether there were Sufficient Bids in such Auction;
(iii) if such Broker-Dealer (a "Seller's Broker-Dealer")
submitted Bids or Sell Orders on behalf of an Existing Securityholder,
whether such Bid or Sell Order was accepted or rejected, in whole or
in part, and the principal amount of Securities, if any, to be sold by
such Existing Securityholder;
(iv) if such Broker-Dealer (a "Buyer's Broker-Dealer") submitted
a Bid on behalf of a Potential Securityholder, whether such Bid was
accepted or rejected, in whole or in part, and the principal amount of
Securities, if any, to be purchased by such Potential Securityholder;
(v) if the aggregate amount of Securities to be sold by all
Existing Securityholders on whose behalf such Seller's Broker-Dealer
submitted Bids or Sell Orders exceeds the aggregate principal amount
of Securities to be purchased by all Potential Securityholders on
whose behalf such Buyer's Broker-Dealer submitted a Bid, the name or
names of one or more Buyer's Broker-Dealers and the name of the
Participant, if any, of each such Buyer's Broker-Dealer (a
"Participant") acting for one or more purchasers of such excess
principal amount of Securities and the principal amount of Securities
to be purchased from one or more Existing Securityholders on whose
behalf such Seller's Broker- Dealer acted by one or more Potential
Securityholders on whose behalf each of such Buyer's Broker- Dealers
acted;
(vi) if the principal amount of Securities to be purchased by all
Potential Securityholders on whose behalf such Buyer's Broker-Dealer
submitted a Bid exceeds the amount of Securities to be sold by all
Existing Securityholders on whose behalf such Seller's Broker-Dealer
submitted a Bid or a Sell Order, the name or names of one or more
Seller's Broker-Dealers (and the name of the Participant, if any, of
each such Seller's Broker-Dealer) acting for one or more sellers of
such excess principal amount of Securities and the principal amount of
Securities to be sold to one or more Potential Securityholders on
whose behalf such Buyer's Broker-Dealer acted by one or more Existing
Securityholder on whose behalf each of such Seller's Broker-Dealers
acted; and
(vii) the Auction Date for the next succeeding Auction.
(b) On each Auction Date, each Broker-Dealer that submitted an Order
on behalf of any Existing Securityholder or Potential Securityholder is to:
(i) advise each Existing Securityholder and Potential
Securityholder on whose behalf such Broker-Dealer submitted a Bid or
Sell Order in the Auction on such Auction Date whether such Bid or
Sell Order was accepted or rejected, in whole or in part;
(ii) in the case of a Broker-Dealer that is a Buyer's
Broker-Dealer, advise each Potential Securityholder on whose behalf
such Buyer's Broker-Dealer submitted a Bid that was accepted, in whole
or in part, to instruct such Potential Securityholder's Participant to
pay to such Buyer's Broker- Dealer (or its Participant) through DTC
the amount necessary to purchase the principal amount of the
Securities to be purchased pursuant to such Bid against receipt of
such Securities together with accrued interest;
(iii) in the case of a Broker-Dealer that is a Seller's
Broker-Dealer, instruct each Existing Securityholder on whose behalf
such Seller's Broker-Dealer submitted a Sell Order that was accepted,
in whole or in part, or a Bid that was accepted, in whole or in part,
to instruct such Existing Securityholder's Participant to deliver to
such Seller's Broker-Dealer (or its Participant) through DTC the
principal amount of the Securities to be sold pursuant to such Order
against payment therefor;
(iv) advise each Existing Securityholder on whose behalf such
Broker-Dealer submitted an Order and each Potential Securityholder on
whose behalf such Broker-Dealer submitted a Bid of the Security
Interest Rate for the next Interest Period;
(v) advise each Existing Securityholder on whose behalf such
Broker-Dealer submitted an Order of the next Auction Date; and
(vi) advise each Potential Securityholder on whose behalf such
Broker-Dealer submitted a Bid that was accepted, in whole or in part,
of the next Auction Date.
(c) On the basis of the information provided to it pursuant to
paragraph (a) above, each Broker- Dealer that submitted a Bid or Sell Order in
an Auction is required to allocate any funds received by it in connection with
such Auction pursuant to paragraph (b)(ii) above, and any Securities received by
it in connection with such Auction pursuant to paragraph (b)(iii) above, among
the Potential Securityholders, if any, on whose behalf such Broker-Dealer
submitted Bids, the Existing Securityholder, if any, on whose behalf such
Broker-Dealer submitted Bids or Sell Orders in such Auction, and any
Broker-Dealers identified to it by the Auction Agent following such Auction
pursuant to paragraph (a) (v) or (a) (vi) above.
(d) On each Auction Date:
(i) each Potential Securityholder and Existing Securityholder
with an Order in the Auction on such Auction Date will instruct its
Participant as provided in (b)(ii) or (b)(iii) above, as the case may
be:
(ii) each Seller's Broker-Dealer that is not a Participant in
DTC's system will instruct its Participant to deliver such Securities
through DTC to a Buyer's Broker-Dealer (or its Participant) identified
to such Seller's Broker-Dealer pursuant to (a) (v) above against
payment therefor; and
(iii) each Buyer's Broker-Dealer that is not a Participant in
DTC's system will instruct its Participant to pay through DTC to
Seller's Broker-Dealer (or its Participant) identified following such
Auction pursuant to (a) (vi) above the amount necessary to purchase
the Securities to be purchased pursuant to (b)(ii) above against
receipt of such Securities.
(e) On the Business Day following each Auction Date;
(i) each Participant for a Bidder in the Auction on such Auction
Date referred to in (d)(i) above will instruct DTC to execute the
transactions described under (b)(ii) or (b)(iii) above for such
Auction, and DTC will execute such transactions;
(ii) each Seller's Broker-Dealer or its Participant will instruct
DTC to execute the transactions described in (d)(ii) above for such
Auction, and DTC will execute such transactions; and
(iii) each Buyer's Broker-Dealer or its Participant will instruct
DTC to execute the transactions described in (d)(iii) above for such
Auction, and DTC will execute such transactions.
(f) If an Existing Securityholder selling Securities in an Auction
fails to deliver such Securities (by authorized book-entry), a Broker-Dealer may
deliver to the Potential Securityholder on behalf of which it submitted a Bid
that was accepted a principal amount of Securities that is less than the
principal amount of Securities that otherwise was to be purchased by such
Potential Securityholder. In such event, the principal amount of Securities to
be so delivered will be determined solely by such Broker-Dealer (but only in
Authorized Denominations). Delivery of such lesser principal amount of
Securities will constitute good delivery. Notwithstanding the foregoing terms of
this paragraph (f), any delivery or nondelivery of Securities which will
represent any departure from the results of an Auction, as determined by the
Auction Agent, will be of no effect unless and until the Auction Agent will have
been notified of such delivery or nondelivery in accordance with the provisions
of the Auction Agent Agreement and the Broker-Dealer Agreements. Neither the
Trustee nor the Auction Agent will have any responsibility or liability with
respect to the failure of a Potential Securityholder, Existing Securityholder or
their Respective Broker-Dealer or Participant to take delivery of or deliver, as
the case may be, the principal amount of the Securities purchased or sold
pursuant to an Auction or otherwise.
<PAGE>
NO DEALER, SALESMAN OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE REPRESENTATIVE OR THE UNDERWRITER. THIS PROSPECTUS SUPPLEMENT
AND THE ACCOMPANYING PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES OFFERED
HEREBY NOR AN OFFER OF SUCH SECURITIES TO ANY PERSON IN ANY STATE OR OTHER
JURISDICTION IN WHICH SUCH OFFER WOULD BE UNLAWFUL. THE DELIVERY OF THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS AT ANY TIME DOES NOT IMPLY
THAT INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
PAGE
Summary of Terms....................................................... S- 2
Risk Factors........................................................... S-22
The Loan Pool.......................................................... S-25
The SBA Loan Program................................................... S-47
Yield, Maturity and Prepayment Considerations.......................... S-49
The Sellers............................................................ S-52
Description of the Agreement and the Securities........................ S-54
The Trustee............................................................ S-66
Federal Income Tax Consequences........................................ S-67
ERISA Considerations................................................... S-71
Legal Investment....................................................... S-71
Underwriting........................................................... S-72
Ratings................................................................ S-72
Legal Matters.......................................................... S-73
Financial Information.................................................. S-73
Annex I................................................................ S-74
Index of Principal Terms............................................... S-78
Certain Definitions.................................................... S-82
(Back cover continued
on next page)
<PAGE>
PROSPECTUS
Prospectus Supplement ................................................. 3
Available Information ................................................. 3
Reports to Securityholders............................................. 4
Incorporation of Certain Documents by Reference........................ 4
Summary of Terms ...................................................... 5
Risk Factors........................................................... 20
The Trusts............................................................. 24
Use of Proceeds ....................................................... 29
The Representative and the Originators................................. 29
The SBA Loan Lending Program........................................... 30
Description of the Securities.......................................... 36
Credit Enhancement .................................................... 43
Maturity, Prepayment and Yield Considerations ......................... 48
The Agreements ........................................................ 49
Certain Legal Aspects of the Loans .................................... 61
Federal Income Tax Consequences ....................................... 64
ERISA Considerations .................................................. 88
Legal Investment Considerations ....................................... 90
Plan of Distribution .................................................. 90
Legal Matters ......................................................... 91
Experts................................................................ 91
Financial Information.................................................. 91
Rating................................................................. 91
Index of Principal Terms............................................... 92
Appendix I - Auction Procedures ....................................... I-1
Appendix II - Settlement Procedures.................................... II-1
(Back cover continued
on next page)
<PAGE>
$--------------
(APPROXIMATE)
THE MONEY STORE INC.
(REPRESENTATIVE)
THE MONEY STORE ASSET BACKED CERTIFICATES
THE MONEY STORE ASSET BACKED NOTES
(ISSUABLE IN SERIES)
PROSPECTUS SUPPLEMENT
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION*
The estimated expenses in connection with the offering, all of which will
be borne by the Registrant are as follows:
Registration Fee..........................................$378,787.88*
Trustee's Fee..............................................$25,000.00
Printing...................................................$50,000.00
Legal Fees and Expenses...................................$125,000.00
Accounting Fees............................................$17,000.00
Blue Sky Qualification Fees
and Expenses............................................$15,000.00
Rating Agency Fees.........................................$25,000.00
Miscellaneous..............................................$10,000.00
Total.....................................................$645,787.88
* All amounts are estimates of expenses incurred or to be
incurred in connection with the issuance and distribution
of a Series of Securities in an aggregate principal
amount assumed for these purposes to be one-eighth of the
principal amount of Securities registered hereby.
Accordingly, only one-eighth of the SEC Registration Fee
paid upon the filing of this Registration Statement is
included in the table above.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 14A:3-5 of the New Jersey Business Corporation Act provides that
New Jersey corporations such as The Money Store Inc. may indemnify any director,
officer, employee or agent against expenses and liabilities in connection with
any proceeding involving the director, officer, employee or agent by reason of
him or her acting in such capacity if he or she acted in good faith and in a
manner he or she reasonably believed to be in or not opposed to the best
interests of the corporation, and with respect to any criminal action or
proceeding, did not have reasonable cause to believe such conduct was unlawful.
Section Fifth of The Money Store Inc.'s Amended and Restated Certificate of
Incorporation and Article VIII of The Money Store Inc.'s Amended and Restated
By-Laws entitle officers, directors, employees and agents to indemnification to
the fullest extent permitted by Section 14A:3-5 of the New Jersey Business
Corporation Act.
Section Sixth of The Money Stores Inc.'s Amended and Restated Certificate
of Incorporation provides that no director or officer shall have any personal
liability to The Money Store Inc. or its shareholders for any damages for breach
of fiduciary duty as a director or officer, except that such provision does not
limit or eliminate the liability of any director or officer (i) for breach of
such director's or officer's duty of loyalty to The Money Store Inc. or its
shareholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, or (iii) for any
transaction from which such director or officer derived an improper personal
benefit.
The Money Store Inc. maintains directors' and officers' liability insurance
which covers the directors and officers of The Money Store Inc. with policy
limits of $10,000,000, with excess coverage of an additional $10,000,000.
Unless otherwise specified in the related Prospectus Supplement, each
Agreement will provide that The Money Store Inc. will indemnify and hold the
Trustee harmless against any losses the Trustee may sustain by reason of the
failure of The Money Store Inc. to perform its obligations under the Agreement.
ITEM 16. LIST OF EXHIBITS
(a) Any required financial statements of a provider of credit
enhancement will be incorporated by reference onto, or
included as an appendix to, the related Prospectus Supplement.
(b)
1.1 Form of Underwriting Agreement among The Money Store Inc., the
Originators and the Underwriter named therein, relating to the
distribution of the Certificates and/or Notes.*
4.1 Form of Indenture.**
4.2 Form of Pooling and Servicing Agreement.*
4.4 Form of Trust Agreement.**
5.1 Opinion of Stroock & Stroock & Lavan LLP as to legality of the
securities being registered.**
8.1 Opinion of Stroock & Stroock & Lavan LLP with respect to tax
matters (included in Exhibit 5.1).
10.1 Form of Sale and Servicing Agreement.**
23.1 Consent of Stroock & Stroock & Lavan LLP (included in Exhibit
5.1).
23.2 Consent of KPMG Peat Marwick LLP.**
24.1 Powers of Attorney (previously filed as part of the signature
page).
25.1 Statement of Eligibility and Qualification of
Trustee (Form T-1).**
- ---------------
* Filed previously in connection with Form S-3
Registration Statement
No. 33-98734 and incorporated herein by reference.
** Filed herewith.
ITEM 17. UNDERTAKINGS
The Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the Registration
Statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high and of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement;
(iii) to include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement or any
material change of such information in the Registration Statement;
PROVIDED, HOWEVER, that paragraphs (i) and (ii) do not apply if the information
required to be included in the post-effective amendment is contained in periodic
reports filed by the Registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
The Registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, each filing by the Registrant of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 that is incorporated by reference in the Registration
Statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions described in Item 15 above,
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted against the Registrant by such director, officer
or controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment No. 1 to
this Registration Statement and Post-Effective Amendment to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Union,
State of New Jersey, on the 5th day of September, 1997.
THE MONEY STORE INC. ("TMS") AND THE
ORIGINATORS LISTED ON EXHIBIT A
(THE "ORIGINATORS")
By:/S/ MORTON DEAR
MORTON DEAR
VICE CHAIRMAN, SENIOR
EXECUTIVE VICE PRESIDENT AND
DIRECTOR OF TMS AND EXECUTIVE
VICE PRESIDENT AND DIRECTOR
OF EACH ORIGINATOR
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 1 to Registration Statement and Post-Effective Amendment has
been signed by the following persons in the capacities indicated on September 5,
1997.
SIGNATURE TITLE
* Chairman of the Board of Directors and
Alan Turtletaub Executive Vice President of TMS and
Director and Executive Vice President of
each Originator.
* President, Chief Executive Officer
Marc Turtletaub (Principal Executive Officer) and
Director of TMS, Executive Vice President
and Director of each Originator.
/S/ MORTON DEAR Vice Chairman, Senior Executive Vice
Morton Dear President and Director of TMS and
Executive Vice President and Director
of each Originator
* Treasurer and Director
Harry Puglisi of TMS and Treasurer of each Originator
* Director and Executive Vice President
William S. Templeton of TMS and President (Principal
Executive Officer) of each Originator
other than The Money Store Investment
Corporation, The Money Store of New
York, Inc. and the Money Store
Commercial Mortgage Inc.
* President (Principal Executive
Paul Leliakov Officer) and Director of The Money Store
Investment Corporation, The Money Store
of New York, Inc. and The Money Store
Commercial Mortgage Inc.
* Director of TMS
Alexander C. Schwartz, Jr.
* Director of TMS
Anthony L. Watson
* Vice President and Principal Accounting
James K. Ransom Officer of TMS and each Originator
/S/ Michael Benoff Chief Financial Officer (Principal
Michael Benoff Financial Officer) and Executive Vice
President of TMS and Vice President
of each Originator
*By:/S/ Morton Dear
Morton Dear
Attorney-in-Fact
<PAGE>
EXHIBIT A
LIST OF ORIGINATORS
The Money Store/D.C. Inc.
The Money Store/Kentucky Inc.
The Money Store/Minnesota Inc.
The Money Store Home Equity Corp.
TMS Mortgage Inc.
The Money Store Investment Corporation
The Money Store of New York, Inc.
The Money Store Commercial Mortgage Inc.
<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 9, 1997
REGISTRATION STATEMENT NO. 333-32775
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
EXHIBITS TO
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
AND
POST EFFECTIVE AMENDMENT
Under
The Securities Act of 1933
----------------
THE MONEY STORE INC.
(Representative of the Trusts described herein)
AND THE ORIGINATORS LISTED BELOW
The Money Store/D.C. Inc.
The Money Store/Kentucky Inc.
The Money Store/Minnesota Inc.
The Money Store Home Equity Corp.
TMS Mortgage Inc.
The Money Store Investment Corporation
The Money Store of New York, Inc.
The Money Store Commercial Mortgage Inc.
(Exact name of registrant as specified in its charter)
* *
State of Incorporation IRS Employer Identification Number
- -----------------
* -- See Schedule A
2840 Morris Avenue
Union, New Jersey 07083
(908) 686-2000
(Address, including zip code, and telephone number, including area code,
of Registrant's principal executive office)
Eric R. Elwin, Esq.
Vice President and Corporate Counsel
2840 Morris Avenue
Union, New Jersey 07083
(908) 686-2000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
Richard L. Fried, Esq.
Stroock & Stroock & Lavan LLP
180 Maiden Lane
New York, New York 10038-4982
<PAGE>
SCHEDULE A
State of IRS Employer
REGISTRANT INCORPORATION IDENTIFICATION
NUMBER
The Money Store Inc. New Jersey 22-2293022
TMS Mortgage Inc. New Jersey 22-3217781
The Money Store/D.C. Inc. D.C. 22-2133027
The Money Store/Kentucky Inc. Kentucky 22-2459832
The Money Store Home Equity Corp. Kentucky 22-2522232
The Money Store/Minnesota Inc. Minnesota 22-3003495
The Money Store Investment
Corporation New Jersey 22-2293019
The Money Store of New York, Inc. New York 22-3143559
The Money Store Commercial
Mortgage Inc. New Jersey 22-2378261
<PAGE>
EXHIBIT INDEX
(a) Any required financial statements of a provider of credit
enhancement will be incorporated by reference onto, or
included as an appendix to, the related Prospectus Supplement.
(b)
1.1 Form of Underwriting Agreement between The Money Store Inc.,
the Originators and the Underwriter named therein, relating to
the distribution of the Certificates and/or Notes.*
4.1 Form of Indenture.**
4.2 Form of Pooling and Servicing Agreement.*
4.4 Form of Trust Agreement.**
5.1 Opinion of Stroock & Stroock & Lavan LLP as to legality of the
securities being registered.**
8.1 Opinion of Stroock & Stroock & Lavan LLP with respect to tax
matters (included in Exhibit 5.1).
10.1 Form of Sale and Servicing Agreement.**
23.1 Consent of Stroock & Stroock & Lavan LLP (included in Exhibit
5.1).
23.2 Consent of KPMG Peat Marwick LLP.**
24.1 Powers of Attorney (previously filed as part of the signature
page).
25.1 Statement of Eligibility and Qualification of
Trustee (Form T-1).**
- ---------------
* Filed previously in connection with form S-3
Registration Statement No. 33-98734 and incorporated
herein by reference.
** Filed herewith.
<PAGE>
[Exhibit 5.1]
Exhibit 4.1
=============================================================
THE MONEY STORE TRUST 1997 -_
__% Asset Backed Notes
--------------------------------
FORM OF INDENTURE
Dated as of _________ __, 1997 -_
--------------------------------
[The Bank of New York,]
as Trustee
================================================================
CROSS REFERENCE TABLE1
- -------------
1 Note: This Cross Reference Table shall not, for any purpose, be deemed
to be part of this Indenture.
TIA Indenture
Section Section
310(a)(1)........................................................ 6.11
(a)(2)........................................................ 6.11
(a)(3)........................................................ 6.10
(a)(4)........................................................ N.A.2
- ----------------
2 N.A. means Not Applicable.
(a)(5)........................................................ 6.11
(b)........................................................... 6.8; 6.11
(c)........................................................... N.A.
311(a)........................................................... 6.12
(b)........................................................... 6.12
(c)........................................................... N.A.
312(a)........................................................... 7.1
(b)........................................................... 7.2
(c)........................................................... 7.2
(d)........................................................... 7.4
313(a)........................................................... 7.4
(b)(1)........................................................ 7.4
(b)(2)........................................................ 11.5
(c)........................................................... 7.4
(d)........................................................... 7.3
314(a)........................................................... 3.9; 11.15
(b)........................................................... 11.1
(c)(1)........................................................ 11.1
(c)(2)........................................................ 11.1
(c)(3)........................................................ 11.1
(d)........................................................... 11.1
(e)........................................................... 11.1
(f)........................................................... 11.1
315(a)........................................................... 6.1
(b)........................................................... 6.5; 11.5
(c)........................................................... 6.1
(d)........................................................... 6.1
(e)........................................................... 5.13
316(a)(last sentence)............................................ 2.7
(a)(1) (A).................................................... 5.11
(a)(1) (B).................................................... 5.12
(a)(2)........................................................ N.A.
(b)........................................................... 5.7
(c)........................................................... N.A
317(a)(1)........................................................ 5.3
(a)(2)........................................................ 5.32
(b)........................................................... 3.3
318(a)........................................................... 11.7
TABLE OF CONTENTS
Page
ARTICLE I
Definitions and Incorporation by Reference
SECTION 1.1 Definitions................................................. 2
SECTION 1.2 Incorporation by Reference of Trust Indenture Act........... 8
SECTION 1.3 Rules of Construction....................................... 8
ARTICLE II
The Notes
SECTION 2.1 Form....................................................... 9
SECTION 2.2 Execution, Authentication and Delivery..................... 9
SECTION 2.3 Temporary Notes............................................ 10
SECTION 2.4 Registration; Registration of Transfer and Exchange........ 10
SECTION 2.5 Mutilated, Destroyed, Lost or Stolen Notes................. 11
SECTION 2.6 Persons Deemed Owner....................................... 12
SECTION 2.7 Payment of Principal and Interest; Defaulted Interest...... 12
SECTION 2.8 Cancellation............................................... 13
SECTION 2.9 Release of Collateral...................................... 13
SECTION 2.10 Book-Entry Notes........................................... 14
SECTION 2.11 Notices to Clearing Agency................................. 14
SECTION 2.12 Definitive Notes........................................... 15
ARTICLE III
Covenants
SECTION 3.1 Payment of Principal and Interest.......................... 15
SECTION 3.2 Maintenance of Office or Agency............................ 15
SECTION 3.3 Money for Payments To Be Held in Trust..................... 16
SECTION 3.4 Existence.................................................. 17
SECTION 3.5 Protection of Trust Estate................................. 17
SECTION 3.6 Opinions as to Trust Estate................................ 18
SECTION 3.7 Performance of Obligations; Servicing of The Mortgage
Loans.................................................... 18
SECTION 3.8 Negative Covenants ........................................ 20
SECTION 3.9 Annual Statement as to Compliance........................... 21
SECTION 3.10 Issuer May Consolidate, Etc. Only on Certain Terms......... 21
SECTION 3.11 Successor or Transferee.................................... 23
SECTION 3.12 No Other Business.......................................... 23
SECTION 3.13 No Borrowing............................................... 23
SECTION 3.14 Servicer's Obligations..................................... 23
SECTION 3.15 Guarantees, Loans, Advances and Other Liabilities.......... 23
SECTION 3.16 Capital Expenditures....................................... 24
SECTION 3.17 [Reserved]................................................. 24
SECTION 3.18 Restricted Payments........................................ 24
SECTION 3.19 Notice of Events of Default................................ 24
SECTION 3.20 Further Instruments and Acts............................... 24
ARTICLE IV
Satisfaction and Discharge
SECTION 4.1 Satisfaction and Discharge of Indenture.................... 25
SECTION 4.2 Application of Trust Money................................. 26
SECTION 4.3 Repayment of Moneys Held by Paying Agent................... 26
SECTION 4.4 Notice..................................................... 26
ARTICLE V
Remedies
SECTION 5.1 Events of Default.......................................... 26
SECTION 5.2 Acceleration of Maturity; Rescission and Annulment......... 27
SECTION 5.3 Collection of Indebtedness and Suits for Enforcement by
Trustee.................................................. 28
SECTION 5.4 Remedies; Priorities....................................... 30
SECTION 5.5 Optional Preservation of the Mortgage Loans................ 31
SECTION 5.6 Limitation of Suits........................................ 32
SECTION 5.7 Unconditional Rights of Noteholders To Receive Principal
and Interest............................................. 32
SECTION 5.8 Restoration of Rights and Remedies......................... 32
SECTION 5.9 Rights and Remedies Cumulative............................. 33
SECTION 5.10 Delay or Omission Not a Waiver............................. 33
SECTION 5.11 Control by Noteholders..................................... 33
SECTION 5.12 Waiver of Past Defaults.................................... 33
SECTION 5.13 Undertaking for Costs...................................... 34
SECTION 5.14 Waiver of Stay or Extension Laws........................... 34
SECTION 5.15 Action on Notes............................................ 34
SECTION 5.16 Performance and Enforcement of Certain Obligations......... 34
ARTICLE VI
The Trustee
SECTION 6.1 Duties of Trustee.......................................... 35
SECTION 6.2 Rights of Trustee.......................................... 36
SECTION 6.3 Individual Rights of Trustee............................... 37
SECTION 6.4 Trustee's Disclaimer....................................... 37
SECTION 6.5 Notice of Defaults......................................... 37
SECTION 6.6 Reports by Trustee to Holders.............................. 37
SECTION 6.7 Compensation and Indemnity................................. 37
SECTION 6.8 Replacement of Trustee..................................... 38
SECTION 6.9 Successor Trustee by Merger................................ 39
SECTION 6.10 Appointment of Co-Trustee or Separate Trustee.............. 39
SECTION 6.11 Eligibility; Disqualification.............................. 40
SECTION 6.12 Preferential Collection of Claims Against Issuer........... 41
ARTICLE VII
Noteholders' Lists and Reports
SECTION 7.1 Issuer To Furnish Trustee Names and Addresses of
Noteholders.............................................. 41
SECTION 7.2 Preservation of Information; Communications to
Noteholders.............................................. 41
SECTION 7.3 Reports by Issuer.......................................... 41
SECTION 7.4 Reports by Trustee......................................... 42
ARTICLE VIII
Accounts, Disbursements and Releases
SECTION 8.1 Collection of Money........................................ 42
SECTION 8.2 Trust Accounts............................................. 42
SECTION 8.3 General Provisions Regarding Accounts...................... 43
SECTION 8.4 Release of Trust Estate.................................... 44
SECTION 8.5 Opinion of Counsel......................................... 44
ARTICLE IX
Supplemental Indentures
SECTION 9.1 Supplemental Indentures without Consent of Noteholders..... 45
SECTION 9.2 Supplemental Indentures with Consent of Noteholders........ 46
SECTION 9.3 Execution of Supplemental Indentures....................... 47
SECTION 9.4 Effect of Supplemental Indenture........................... 48
SECTION 9.5 Conformity with Trust Indenture Act........................ 48
SECTION 9.6 Reference in notes to Supplemental Indentures.............. 48
ARTICLE X
Redemption of Notes
SECTION 10.1 Redemption................................................. 48
SECTION 10.2 Form of Redemption Notice.................................. 49
SECTION 10.3 Notes Payable on Redemption Date........................... 49
ARTICLE XI
Miscellaneous
SECTION 11.1 Compliance Certificates and Opinions, etc................. 49
SECTION 11.2 Form of Documents Delivered to Trustee.................... 51
SECTION 11.3 Acts of Noteholders....................................... 52
SECTION 11.4 Notices, etc., to Trustee, Issuer and Rating Agencies..... 52
SECTION 11.5 Notices to Noteholders; Waiver............................ 53
SECTION 11.6 Alternate Payment and Notice Provisions................... 54
SECTION 11.7 Conflict with Trust Indenture Act......................... 54
SECTION 11.8 Effect of Headings and Table of Contents.................. 54
SECTION 11.9 Successors and Assigns.................................... 54
SECTION 11.10 Separability.............................................. 54
SECTION 11.11 Benefits of Indenture..................................... 54
SECTION 11.12 Legal Holidays............................................ 54
SECTION 11.13 Governing Law............................................. 55
SECTION 11.14 Counterparts.............................................. 55
SECTION 11.15 Recording of Indenture.................................... 55
SECTION 11.16 Trust Obligation.......................................... 55
SECTION 11.17 No Petition............................................... 55
SECTION 11.18 Inspection................................................ 56
Testimonium, Signatures and Seals
Exhibit A Schedule of Mortgage Loans
Exhibit B Form of Sale and Servicing Agreement
Exhibit C Form of Note Depository Agreement
Exhibit D Form of Note
<PAGE>
INDENTURE dated as of _________ __, 1997
-_, between THE MONEY STORE TRUST 1997 -_, a
Delaware business trust (the "Issuer"), and
[The Bank of New York], a[New York banking
corporation], as trustee and not in its
individual capacity (the "Trustee").
Each party agrees as follows for the benefit of the other party and
for the equal and ratable benefit of the Holders of the Issuer's __% Asset
Backed Notes (the "Notes"):
GRANTING CLAUSE
The Issuer hereby Grants to the Trustee at the Closing Date, as
Trustee for the benefit of the Holders of the Notes a security interest in and
to all of the Issuer's right, title and interest in and to (a) each Mortgage
Loan identified in the Schedule of Mortgage Loans delivered by the Issuer on the
Closing Date; (b) the principal collected and interest accrued on each such
Mortgage Loan on or after the Cut-Off Date; (c) the principal and interest
received thereon prior to the Cut-Off Date that is due on or after the Cut-Off
Date; (d) all prepayments, proceeds of foreclosure proceedings, insurance
proceeds, investment income respecting the foregoing, (f) any Mortgaged Property
which becomes an REO Property (e) the Sale and Servicing; and (e) the proceeds
of any and all of the foregoing (collectively, the "Collateral").
The foregoing Grant is made in trust to secure the payment of
principal of and interest on, and any other amounts owing in respect of, the
Notes, equally and ratably without prejudice, priority or distinction except as
set forth herein, and to secure compliance with the provisions of this
Indenture, all as provided in this Indenture.
The Trustee, as Trustee on behalf of the Holders of the Notes,
acknowledges such Grant, accepts the trusts under this Indenture in accordance
with the provisions of this Indenture and agrees to perform its duties required
in this Indenture to the best of its ability to the end that the interests of
the Holders of the Notes may be adequately and effectively protected.
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.1 Definitions. Except as otherwise specified herein, the
following terms have the respective meanings set forth below for all purposes of
this Indenture.
"ACT" has the meaning specified in Section 11.3(a).
"AFFILIATE" means, with respect to any specified Person, any other
Person controlling or controlled by or under common control with such specified
Person. For the purposes of this definition, "control" when used with respect to
any specified Person means the power to direct the management and policies of
such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"AUTHORIZED OFFICER" means, with respect to the Issuer and the
Servicer, any officer or agent acting under a power of attorney of the Owner
Trustee or the Servicer, as applicable, who is authorized to act for the Owner
Trustee or the Servicer, as applicable, in matters relating to the Issuer and
who is identified on the list of Authorized Officers delivered by each of the
Owner Trustee and the Servicer to the Trustee on the Closing Date (as such list
may be modified or supplemented from tim to time thereafter).
"BASIC DOCUMENTS" means the Certificate of Trust, the Trust Agreement,
the Sale and Servicing Agreement, the Depository Agreements and other documents
and certificates delivered in connection therewith.
"BOOK ENTRY NOTES" means a beneficial interest in the Notes, ownership
and transfers of which shall be made through book entries by a Clearing Agency
as described in Section 2.10.
"BUSINESS DAY" means any day other than a Saturday, a Sunday or a day
on which banking institutions or trust companies in the City of New York or
Wilmington, Delaware are authorized or obligated by law, regulation or executive
order to remain closed.
"CERTIFICATE OF TRUST" means the certificate of trust of the Issuer
substantially in the form of Exhibit B to the Trust Agreement.
"CLEARING AGENCY" means an organization registered as a "clearing
agency" pursuant to Section 17A of the Exchange Act.
"CLEARING AGENCY PARTICIPANT" means a broker, dealer, bank, other
financial institution or other Person for whom from time to time a Clearing
Agency effects book-entry transfers and pledges of securities deposited with the
Clearing Agency.
"CODE" means the Internal Revenue Code of 1986, as amended from time
to time, and Treasury Regulations promulgated thereunder.
"COLLATERAL" has the meaning specified in the Granting Clause of this
Indenture.
"CORPORATE TRUST OFFICE" means the principal office of the Trustee at
which at any particular time its corporate trust business shall be principally
administered which office at date of the execution of this Agreement is located
at ____________________________, Attention: Corporate Trust Asset Backed Unit
(Telephone: ____________; Facsimile: ___________ or at such other address as the
Trustee may designate from time to time by notice to the Noteholders, the
Servicer and the Issuer, or the principal corporate trust office of any
successor Trustee (the address of which the successor Trustee will notify the
Noteholders and the Issuer).
"DEFAULT" means any occurrence that is, or with notice or the lapse of
time or both would become, an Event of Default.
"DEFINITIVE NOTES" has the meaning specified in Section 2.10.
"EVENT OF DEFAULT" has the meaning specified in Section 5.1.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXECUTIVE OFFICER" means, with respect to any corporation, the
President, Executive Vice President, any Vice President, the Secretary or the
Treasurer of such corporation; and with respect to any partnership, any general
partner thereof.
"GP INTEREST" shall have the meaning given to such term in the Trust
Agreement.
"GRANT" means mortgage, pledge, bargain, sell, warrant, alienate,
remise, release, convey, assign, transfer, create, grant a lien upon and a
security interest in and right of set-off against, deposit, set over and confirm
pursuant to this Indenture. A Grant of the Collateral or of any other agreement
or instrument shall include all rights, powers and options (but none of the
obligations) of the Granting party thereunder, including the immediate and
continuing right to claim for, collect, receive and give receipt for principal
and interest payments in respect of the Collateral and all other moneys payable
thereunder, to give and receive notices and other communications, to make
waivers or other agreements, to exercise all rights and options, to bring
proceedings in the name of the Granting party or otherwise and generally to do
and receive anything that the Granting party is or may be entitled to do or
receive thereunder or with respect thereto.
"HOLDER" or "NOTEHOLDER" means the Person in whose name a Note is
registered on the Note Register.
"INDENTURE" means this Indenture as amended and supplemented from time
to time.
"INDEPENDENT" means, when used with respect to any specified Person,
that the person (a) is in fact independent of the Issuer, any other obligor upon
the Notes, the Representative and any Affiliate of any of the foregoing persons,
(b) does not have any direct financial interest or any material indirect
financial interest in the Issuer, any such other obligor, the Representative or
any Affiliate of any of the foregoing Persons and (c) is not connected with the
Issuer, any such other obligor, the Representative or any Affiliate of any of
the foregoing Persons as an officer, employee, promoter, underwriter, trustee,
partner, director or Person performing similar functions.
"INDEPENDENT CERTIFICATE" means a certificate or opinion to be
delivered to the Trustee under the circumstances described in, and otherwise
complying with, the applicable requirements of Section 11.1, made by an
Independent appraiser or other expert appointed by an Issuer Order and approved
by the Trustee in the exercise of reasonable care, and such opinion or
certificate shall state that the signer has read the definition of "Independent"
in this Indenture and that the signer is Independen within the meaning thereof.
"INTEREST RATE" means __% per annum (computed on the basis of a
360-day year of twelve 30-day months).
"ISSUER" means the party named as such in this Indenture until a
successor replaces it and, thereafter, means the successor and, for purposes of
any provision contained herein and required by the TIA, each other obligor on
the Notes.
"ISSUER ORDER" and "ISSUER REQUEST" means a written order or request
signed in the name of the Issuer by any one of its Authorized Officers and
delivered to the Trustee.
"NOTES" means the __% Asset Backed Notes, substantially in the form of
Exhibit D.
"NOTE DEPOSITORY AGREEMENT" means the agreement among the Issuer, the
Trustee, the Servicer and The Depository Trust Company, as the initial Clearing
Agency, dated one Business Day prior to Closing Date, substantially in the form
of Exhibit C.
"NOTE OWNER" means, with respect to a Book-Entry Note, the person who
is the owner of such Book-Entry Note, as reflected on the books of the Clearing
Agency, or on the books of a Person maintaining an account with such Clearing
Agency (directly as a Clearing Agency Participant or as an indirect participant,
in each case in accordance with the rules of such Clearing Agency).
"NOTE REGISTER" and "NOTE REGISTRAR" have the respective meanings
specified in Section 2.4.
"OFFICER'S CERTIFICATE" means a certificate signed by any Authorized
Officer of the Issuer, under the circumstances described in, and otherwise
complying with, the applicable requirements of Section 11.1 and TIA ss. 314, and
delivered to the Trustee. Unless otherwise specified, any reference in this
Indenture to an Officer's Certificate shall be to an Officer's Certificate of
any Authorized Officer of the Issuer.
"OPINION OF COUNSEL" means one or more written opinions of counsel who
may, except as otherwise expressly provided in this Indenture, be employees of
or counsel to the Issuer and who shall be satisfactory to the Trustee, and which
opinion or opinions shall be addressed to the Trustee as Trustee, shall comply
with any applicable requirements of Section 11.1, and shall be in form and
substance satisfactory to the Trustee.
"OUTSTANDING" means, as of the date of determination, all Notes
theretofore authenticated and delivered under this Indenture except:
(i) Notes theretofore canceled by the Note Registrar or delivered
to the Note Registrar for cancellation;
(ii) Notes or portions thereof the payment for which money in the
necessary amount has been theretofore deposited with the Trustee or
any Paying Agent in trust for the Holders of such Notes (provided,
however, that if such Notes are to be redeemed, notice of such
redemption has been duly given pursuant to this Indenture or provision
therefor, satisfactory to the Trustee); and
(iii) Notes in exchange for or in lieu of other Notes which have
been authenticated and delivered pursuant to this Indenture unless
proof satisfactory to the Trustee is presented that any such Notes are
held by a bona fide purchaser;
PROVIDED that in determining whether the Holders of the requisite Outstanding
Amount of the Notes have given any request, demand, authorization, direction,
notice, consent or waiver hereunder or under any Basic Document, Notes owned by
the Issuer, any other obligor upon the Notes, the Representative or any
Affiliate of any of the foregoing Persons shall be disregarded and deemed not to
be Outstanding, except that, in determining whether the Trustee shall be
protected in relying upon any such request, demand, authorization, direction,
notice, consent or waiver, only Notes that a Responsible Officer of the Trustee
either actually knows to be so owned or has received written notice thereof
shall be so disregarded. Notes so owned that have been pledged in good faith may
be regarded as Outstanding if the pledgee establishes to the satisfaction of the
Trustee the pledgee's right so to act with respect to such Notes and that the
pledgee is not the Issuer, any other obligor upon the Notes, the Representative
or any Affiliate of any of the foregoing Persons.
"OUTSTANDING AMOUNT" means the aggregate principal amount of all Notes
Outstanding at the date of determination.
"OWNER TRUSTEE" shall have the meaning given to such term in the Trust
Agreement.
"PAYING AGENT" means the Trustee or any other Person that meets the
eligibility standards for the Trustee specified in Section 6.11 and is
authorized by the Issuer to make the payments to and distributions from the
Principal and Interest Account and the Note Distribution Account, including
payment of principal of or interest on the Notes on behalf of the Issuer.
"PAYMENT DATE" means a Remittance Date.
"PREDECESSOR NOTE" means, with respect to any particular Note, every
previous Note evidencing all or a portion of the same debt as that evidenced by
such particular Note; and, for the purpose of this definition, any Note
authenticated and delivered under Section 2.5 in lieu of a mutilated, lost,
destroyed or stolen Note shall be deemed to evidence the same debt as the
mutilated, lost, destroyed or stolen Note.
"PROCEEDING" means any suit in equity, action at law or other judicial
or administrative proceeding.
"RECORD DATE" means, with respect to a Remittance Date or Redemption
Date the day immediately preceding the related Remittance Date or Redemption
Date or, in the event Definitive Securities have been issued, the last day of
the month immediately preceding the month in which such Remittance Date occurs.
"REDEMPTION DATE" means (a) in the case of a redemption of the Notes
pursuant to Section 10.1(a) or a payment to Noteholders pursuant to Section
10.1(b), the Remittance Date specified by the Servicer or the Issuer pursuant to
Section 10.1(a) or (b) as applicable.
"REDEMPTION PRICE" means (a) in the case of a redemption of the Notes
pursuant to Section 10.1(a), an amount equal to the unpaid principal amount of
the then outstanding Notes plus accrued and unpaid interest thereon to but
excluding the Redemption Date, or (b) in the case of a payment made to
Noteholders pursuant to Section 10.1(b), the amount on deposit in the Note
Distribution Account, but not in excess of the amount specified in clause (a)
above.
"REPRESENTATIVE" means The Money Store Inc., as Representative of the
Originators under the Sale and Servicing Agreement and the Trust Agreement.
"RESPONSIBLE OFFICER" means, with respect to the Trustee, any officer
within the Corporate Trust Office of the Trustee, including any Vice President,
Assistant Vice President, Assistant Treasurer, Assistant Secretary, or any other
officer of the Trustee customarily performing functions similar to those
performed by any of the above designated officers and also, with respect to a
particular matter, any other officer to whom such matter is referred because of
such officer's knowledge of and familiarity with the particular subject.
"SALE AND SERVICING AGREEMENT" means the Sale and Servicing Agreement
dated as of _________ __, 1997 -_, among the Issuer and
_______________________________, substantially in the form of Exhibit B as the
same may be amended or supplemented from time to time.
"SCHEDULE OF MORTGAGE LOANS" means the listing of the Mortgage Loans
set forth in Exhibit A (which Exhibit may be in the form of microfiche).
"STATE" means any one of the 50 states of the United States of America
or the District of Columbia.
"SUCCESSOR SERVICER" has the meaning specified in Section 3.7(e).
"TRUST AGREEMENT" means the Trust Agreement, dated as of ________,
1997, between The Money Store Inc., as Representative and ___________, as Owner
Trustee.
"TRUST ESTATE" means all money, instruments, rights and other property
that are subject or intended to be subject to the lien and security interest of
this Indenture for the benefit of the Noteholders (including all property and
interests Granted to the Trustee), including all proceeds thereof.
"TRUST INDENTURE ACT" or "TIA" means the Trust Indenture Act of 1939
as in force on the date hereof, unless otherwise specifically provided.
"TRUSTEE" means [The Bank of New York], a [New York banking
corporation], not in its individual capacity but as trustee under this
Indenture, or any successor trustee under this Indenture.
"UCC" means, unless the context otherwise requires, the Uniform
Commercial Code, as in effect in the relevant jurisdiction, as amended from time
to time.
(a) Except as otherwise specified herein, the following terms have the
respective meanings set forth in the Sale and Servicing Agreement as in effect
on the Closing Date for all purposes of this Indenture, and the definitions of
such terms are equally applicable both to the singular and plural forms of such
terms:
Section of Sale and
TERM SERVICING AGREEMENT
Certificateholders..................................... Section 1.01
Closing Date........................................... Section 1.01
Deleted Mortgage Loan.................................. Section 1.01
Depository Agreements.................................. Section 1.01
Due Period............................................. Section 1.01
Final Scheduled Maturity Date.......................... Section 1.01
Final Scheduled Remittance Date........................ Section 1.01
Liquidated Mortgage Loan............................... Section 1.01
Mortgage Loan.......................................... Section 1.01
Mortgaged Property..................................... Section 1.01
Note Distribution Account.............................. Section 1.01
Noteholders' Distributable Amount...................... Section 1.01
Noteholders' Percentage................................ Section 1.01
Originator............................................. Section 1.01
Permitted Instruments.................................. Section 1.01
Person................................................. Section 1.01
Pool Balance........................................... Section 1.01
Principal and Interest Account......................... Section 1.01
Rating Agency.......................................... Section 1.01
Rating Agency Condition................................ Section 1.01
Remittance Date........................................ Section 1.01
REO Property........................................... Section 1.01
Reserve Account........................................ Section 1.01
Servicer Default....................................... Section 1.01
Servicer............................................... Section 1.01
Specified Reserve Account Balance...................... Section 1.01
Total Distribution Amount.............................. Section 1.01
Trust Accounts......................................... Section 1.01
(b) Capitalized terms used herein and not otherwise defined herein or
in the Sale and Servicing Agreement have the meanings assigned to them in the
Trust Agreement.
SECTION 1.2 INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.
Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in and made a part of this Indenture. The following
TIA terms used in this Indenture have the following meanings:
"Commission" means the Securities and Exchange Commission.
"indenture securities" means the Notes.
"indenture security holder" means a Noteholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor" on the indenture securities means the Issuer and any other
obligor on the indenture securities.
All other TIA terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by Commission rule
have the meaning assigned to them by such definitions.
SECTION 1.3 Rules of Construction. Unless the context otherwise
requires:
(i) a term has the meaning assigned to it;
(ii) an accounting term not otherwise defined has the meaning
assigned to it in accordance with generally accepted accounting
principles as in effect from time to time;
(iii) "or" is not exclusive;
(iv) "including" means including without limitation; and
(v) words in the singular include the plural and words in the
plural include the singular.
ARTICLE II
The Notes
SECTION 2.1 Form. The Notes, together with the Trustee's certificate
of authentication, shall be in substantially the form set forth in Exhibit D,
with such appropriate insertions, omissions, substitutions and other variations
as are required or permitted by this Indenture and may have such letters,
numbers or other marks of identification and such legends or endorsements placed
thereon as may, consistently herewith, be determined by the officers executing
such Notes, as evidenced by thei execution of the Notes. Any portion of the text
of any Note may be set forth on the reverse thereof, with an appropriate
reference thereto on the face of the Note.
The Definitive Notes shall be typewritten, printed, lithographed or
engraved or produced by any combination of these methods (with or without steel
engraved borders), all as determined by the officers executing such Notes, as
evidenced by their execution of such Notes.
Each Note shall be dated the date of its authentication. The terms of
the Notes set forth in Exhibit D are part of the terms of this Indenture.
SECTION 2.2 Execution, Authentication and Delivery. The Notes shall be
executed on behalf of the Issuer by any of its Authorized Officers. The
signature of any such Authorized Officer on the Notes may be manual or
facsimile.
Notes bearing the manual or facsimile signature of individuals who
were at any time Authorized Officers of the Issuer shall bind the Issuer,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Notes or did not hold
such offices at the date of such Notes.
The Trustee shall upon Issuer Order authenticate and deliver Notes for
original issue in an aggregate principal amount of $___________. The aggregate
principal amount of Notes outstanding at any time may not exceed such amounts
except as provided in Section 2.5.
Each Note shall be dated the date of its authentication. The Notes
shall be issuable as registered Notes in the minimum denomination of $1,000 and
in integral multiples of $1,000 in excess thereof (except for one Note which may
be issued in a denomination other than an integral multiple of $1,000).
No Note shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose, unless there appears on such Note a
certificate of authentication substantially in the form provided for herein
executed by the Trustee by the manual signature of one of its authorized
signatories, and such certificate upon any Note shall be conclusive evidence,
and the only evidence, that such Note has been duly authenticated and delivered
hereunder.
SECTION 2.3 Temporary Notes. Pending the preparation of Definitive
Notes, the Issuer may execute, and upon receipt of an Issuer Order the Trustee
shall authenticate and deliver, temporary Notes which are printed, lithographed,
typewritten, mimeographed or otherwise produced, of the tenor of the Definitive
Notes in lieu of which they are issued and with such variations not inconsistent
with the terms of this Indenture as the officers executing such Notes may
determine, as evidenced by thei execution of such Notes.
If temporary Notes are issued, the Issuer will cause Definitive Notes
to be prepared without unreasonable delay. After the preparation of Definitive
Notes, the temporary Notes shall be exchangeable for Definitive Notes upon
surrender of the temporary Notes at the office or agency of the Issuer to be
maintained as provided in Section 3.2, without charge to the Holder. Upon
surrender for cancellation of any one or more temporary Notes, the Issuer shall
execute and the Trustee shall authentic and deliver in exchange therefor a like
principal amount of Definitive Notes of authorized denominations. Until so
exchanged, the temporary Notes shall in all respects be entitled to the same
benefits under this Indenture as Definitive Notes.
SECTION 2.4 Registration; Registration of Transfer and Exchange. The
Issuer shall cause to be kept a register (the "Note Register") in which, subject
to such reasonable regulations as it may prescribe, the Issuer shall provide for
the registration of Notes and the registration of transfers of Notes. The
Trustee shall be "Note Registrar" for the purpose of registering Notes and
transfers of Notes as herein provided. The Note Registrar may resign as such
only upon written notice delivered an Authorized Officer of the Issuer, and upon
any resignation of any Note Registrar, the Issuer shall promptly appoint a
successor or, if it elects not to make such an appointment, assume the duties of
Note Registrar.
If a Person other than the Trustee is appointed by the Issuer as Note
Registrar, the Issuer will give the Trustee prompt written notice of the
appointment of such Note Registrar and of the location, and, upon one of its
Authorized Officers receiving written notice thereof, any change in the
location, of the Note Register, and the Trustee shall have the right to inspect
the Note Register at all reasonable times and to obtain copies thereof, and the
Trustee shall have the right to rely upon a certificate executed on behalf of
the Note Registrar by an Executive Officer thereof as to the names and addresses
of the Holders of the Notes and the principal amounts and number of such Notes.
Upon surrender for registration of transfer of any Note at the office
or agency of the Issuer to be maintained as provided in Section 3.2, if the
requirements of Section 8-401(1) of the UCC are met the Issuer shall execute and
upon its request the Trustee shall authenticate and the Noteholder shall obtain
from the Trustee, in the name of the designated transferee or transferees, one
or more new Notes, in any authorized denominations, of the same class and a like
aggregate principal amount.
At the option of the Holder, Notes may be exchanged for other Notes in
any authorized denominations, of the same class and a like aggregate principal
amount, upon surrender of the Notes to be exchanged at such office or agency.
Whenever any Notes are so surrendered for exchange, if the requirements of
Section 8-401(1) of the UCC are met the Issuer shall execute and upon its
request the Trustee shall authenticate and the Noteholder shall obtain from the
Trustee, the Notes which the Notehold making the exchange is entitled to
receive.
All Notes issued upon any registration of transfer or exchange of
Notes shall be the valid obligations of the Issuer, evidencing the same debt,
and entitled to the same benefits under this Indenture, as the Notes surrendered
upon such registration of transfer or exchange.
Every Note presented or surrendered for registration of transfer or
exchange shall be (i) duly endorsed by, or be accompanied by a written
instrument of transfer in form satisfactory to the Trustee duly executed by, the
Holder thereof or such Holder's attorney duly authorized in writing, with such
signature guaranteed by an "eligible guarantor institution" meeting the
requirements of the Note Registrar which requirements include membership or
participation in Securities Transfer Agents Medallion Program ("Stamp") or such
other "signature guarantee program" as may be determined by the Note Registrar
in addition to, or in substitution for, Stamp, all in accordance with the
Exchange Act, and (ii) accompanied by such other documents as the Trustee may
require.
No service charge shall be made to a Holder for any registration of
transfer or exchange of Notes, but the Issuer may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection with any registration of transfer or exchange of Notes, other than
exchanges pursuant to Section 2.3 or 9.6 not involving any transfer.
The preceding provisions of this section notwithstanding, the Issuer
shall not be required to make and the Note Registrar need not register transfers
or exchanges of Notes selected for redemption or of any Note for a period of 15
days preceding the due date for any payment with respect to the Note.
SECTION 2.5 Mutilated, Destroyed, Lost or Stolen Notes. If (i) any
mutilated Note is surrendered to the Trustee, or the Trustee receives evidence
to its satisfaction of the destruction, loss or theft of any Note, and (ii)
there is delivered to the Trustee such security or indemnity as may be required
by it to hold the Issuer and the Trustee harmless, then, in the absence of
notice to the Issuer, the Note Registrar or the Trustee that such Note has been
acquired by a bona fide purchaser, and provided that the requirements of Section
8-405 of the UCC are met, the Issuer shall execute and upon its request the
Trustee shall authenticate and deliver, in exchange for or in lieu of any such
mutilated, destroyed, lost or stolen Note, a replacement Note; provided,
however, that if any such destroyed, lost or stolen Note, but not a mutilated
Note, shall have become or within seven days shall be due and payable, or shall
have been called for redemption, instead of issuing a replacement Note, the
Issuer may pay such destroyed, lost or stolen Note when so due or payable or
upon the Redemption Date without surrender thereof. If, after the delivery of
such replacement Note or payment of a destroyed, lost or stolen Note pursuant to
the proviso to the preceding sentence, a bona fide purchaser of the original
Note in lieu of which such replacement Note was issued presents for payment such
original Note, the Issuer and the Trustee shall be entitled to recover such
replacement Note (or such payment) from the Person to whom it was delivered or
any Person taking such replacement Note from such Person to whom such
replacement Note was delivered or any assignee of such Person, except a bona
fide purchaser, and shall be entitled to recover upon the security or indemnity
provided therefor to the extent of any loss, damage, cost or expense incurred by
the Issuer or the Trustee in connection therewith.
Upon the issuance of any replacement Note under this Section, the
Issuer may require the payment by the Holder of such Note of a sum sufficient to
cover any tax or other governmental charge that may be imposed in relation
thereto and any other reasonable expenses (including the fees and expenses of
the Trustee) connected therewith.
Every replacement Note issued pursuant to this Section in replacement
of any mutilated, destroyed, lost or stolen Note shall constitute an original
additional contractual obligation of the Issuer, whether or not the mutilated,
destroyed, lost or stolen Note shall be at any time enforceable by anyone, and
shall be entitled to all the benefits of this Indenture equally and
proportionately with any and all other Notes duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Notes.
SECTION 2.6 Persons Deemed Owner. Prior to due presentment for
registration of transfer of any Note, the Issuer, the Trustee and any agent of
the Issuer or the Trustee may treat the Person in whose name any Note is
registered (as of the day of determination) as the owner of such Note for the
purpose of receiving payments of principal of and interest, if any, on such Note
and for all other purposes whatsoever, whether or not such Note be overdue, and
neither the Issuer, the Trustee nor any agent of the Issuer or the Trustee shall
be affected by notice to the contrary.
SECTION 2.7 Payment of Principal and Interest; Defaulted Interest. (a)
The Notes shall accrue interest as provided in the form of the Notes, set forth
in Exhibit D, and such interest shall be payable on each Remittance Date as
specified therein. Any installment of interest or principal, if any, payable on
any Note which is punctually paid or duly provided for by the Issuer on the
applicable Remittance Date shall be paid to the Person in whose name such Note
(or one or more Predecessor Notes) is registered on the Record Date, by check
mailed first-class, postage prepaid, to such Person's address as it appears on
the Note Register on such Record Date, except that, unless Definitive Notes have
been issued pursuant to Section 2.12, with respect to Notes registered on the
Record Date in the name of the nominee of the Clearing Agency (initially, such
nominee to be Cede & Co.), payment will be made by wire transfer in immediately
available funds to the account designated by such nominee and except for the
final installment of principal payable with respect to such Note on a Remittance
Date or on the Final Scheduled Remittance Date (and except for the Redemption
Price for any Note called for redemption pursuant to Section 10.1(a)) which
shall be payable as provided below. The funds represented by any such checks
returned undelivered shall be held in accordance with Section 3.3.
(b) The principal of each Note shall be payable in installments on
each Remittance Date as provided in the form of the Notes, set forth in Exhibit
D. Notwithstanding the foregoing, the entire unpaid principal amount of the
Notes shall be due and payable, if not previously paid, on the date on which an
Event of Default shall have occurred and be continuing, if the Trustee or the
Holders of the Notes representing not less than a majority of the Outstanding
Amount of the Notes have declared Notes to be immediately due and payable in the
manner provided in Section 5.2. All principal payments on the Notes shall be
made pro rata to the Noteholders. The Trustee shall notify the Person in whose
name a Note is registered at the close of business on the Record Date preceding
the Remittance Date on which the Issuer expects that the final installment of
principal of and interest on such Note will be paid. Such notice shall be mailed
or transmitted by facsimile prior to such final Remittance Date and shall
specify that such final installment will be payable only upon presentation and
surrender of such Note and shall specify the place where such Note may be
presented and surrendered for payment of such installment. Notices in connection
with redemptions of Notes shall be mailed to Noteholders as provided in Section
10.2.
(c) If the Issuer defaults in a payment of interest on the Notes, the
Issuer shall pay defaulted interest (plus interest on such defaulted interest to
the extent lawful) at the Interest Rate in any lawful manner. The Issuer may pay
such defaulted interest to the Persons who are Noteholders on a subsequent
special record date, which date shall be at least five Business Days prior to
the payment date. The Issuer shall fix or cause to be fixed any such special
record date and payment date, and, at least 15 days before any such special
record date, the Issuer shall mail to each Noteholder and the Trustee a notice
that states the special record date, the payment date and the amount of
defaulted interest to be paid.
SECTION 2.8 Cancellation. All Notes surrendered for payment,
registration of transfer, exchange or redemption shall, if surrendered to any
Person other than the Trustee, be delivered to the Trustee and shall be promptly
canceled by the Trustee. The Issuer may at any time deliver to the Trustee for
cancellation any Notes previously authenticated and delivered hereunder which
the Issuer may have acquired in any manner whatsoever, and all Notes so
delivered shall be promptly canceled by the Trustee. No Notes shall be
authenticated in lieu of or in exchange for any Notes canceled as provided in
this Section, except as expressly permitted by this Indenture. All canceled
Notes may be held or disposed of by the Trustee in accordance with its standard
retention or disposal policy as in effect at the time unless the Issuer shall
direct by an Issuer Order that they be returned to it; provided that such Issuer
Order is timely and the Notes have not been previously disposed of by the
Trustee.
SECTION 2.9 Release of Collateral. Subject to Section 11.1, the
Trustee shall release property from the lien of this Indenture only upon receipt
of an Issuer Request accompanied by an Officer's Certificate, an Opinion of
Counsel and Independent Certificates in accordance with TIA ss.314(c) and
314(d)(l) or an Opinion of Counsel in lieu of such Independent Certificates to
the effect that the TIA does not require any such Independent Certificates.
SECTION 2.10 Book-Entry Notes. The Notes, upon original issuance, will
be issued in the form of typewritten Notes representing the Book-Entry Notes, to
be delivered to [The Bank of New York], as agent for The Depository Trust
Company, the initial Clearing Agency, by, or on behalf of, the Issuer. Such
Notes shall initially be registered on the Note Register in the name of Cede &
Co., the nominee of the initial Clearing Agency, and no Note Owner will receive
a Definitive Note representing such Note Owner's interest in such Note, except
as provided in Section 2.12. Unless and until definitive, fully registered Notes
(the "Definitive Notes") have been issued to Note Owners pursuant to Section
2.12:
(i) the provisions of this Section shall be in full force and
effect;
(ii) the Note Registrar and the Trustee shall be entitled to deal
with the Clearing Agency for all purposes of this Indenture (including
the payment of principal of and interest on the Notes and the giving
of instructions or directions hereunder) as the sole Holder of the
Notes, and shall have no obligation to the Note Owners;
(iii) to the extent that the provisions of this Section conflict
with any other provisions of this Indenture, the provisions of this
Section shall control;
(iv) the rights of Note Owners shall be exercised only through
the Clearing Agency and shall be limited to those established by law
and agreements between such Note Owners and the Clearing Agency and/or
the Clearing Agency Participants. Pursuant to the Note Depository
Agreement, unless and until Definitive Notes are issued pursuant to
Section 2.12, the initial Clearing Agency will make book-entry
transfers among the Clearing Agency Participants and receive and
transmit payments of principal of and interest on the Notes to such
Clearing Agency Participants; and
(v) whenever this Indenture requires or permits actions to be
taken based upon instructions or directions of Holders of Notes
evidencing a specified percentage of the Outstanding Amount of the
Notes, the Clearing Agency shall be deemed to represent such
percentage only to the extent that it has received instructions to
such effect from Note Owners and/or Clearing Agency Participants
owning or representing, respectively, such required percentage of the
beneficial interest in the Notes and has delivered such instructions
to the Trustee.
SECTION 2.11 Notices to Clearing Agency. Whenever a notice or other
communication to the Noteholders is required under this Indenture, unless and
until Definitive Notes shall have been issued to Note Owners pursuant to Section
2.12, the Trustee shall give all such notices and communications specified
herein to be given to Holders of the Notes to the Clearing Agency, and shall
have no obligation to the Note Owners.
SECTION 2.12 Definitive Notes. If (i) the Servicer advises the Trustee
in writing that the Clearing Agency is no longer willing or able to properly
discharge its responsibilities with respect to the Notes, and the Servicer is
unable to locate a qualified successor, (ii) the Servicer at its option advises
the Trustee in writing that it elects to terminate the book-entry system through
the Clearing Agency or (iii) after the occurrence of an Event of Default, Note
Owners representing benefic interests aggregating at least a majority of the
Outstanding Amount of the Notes advise the Trustee through the Clearing Agency
in writing that the continuation of a book entry system through the Clearing
Agency is no longer in the best interests of the Note Owners, then the Clearing
Agency shall notify all Note Owners and the Trustee of the occurrence of any
such event and of the availability of Definitive Notes to Note Owners requesting
the same. Upon surrender to the Trustee of the typewritten Note or Notes
representing the Book-Entry Notes by the Clearing Agency, accompanied by
registration instructions, the Issuer shall execute and the Trustee shall
authenticate the Definitive Notes in accordance with the instructions of the
Clearing Agency. None of the Issuer, the Note Registrar or the Trustee shall be
liable for any delay in delivery of such instructions and may conclusively rely
on, and shall be protected in relying on, such instructions. Upon the issuance
of Definitive Notes, the Trustee shall recognize the Holders of the Definitive
Notes as Noteholders.
ARTICLE III
Covenants
SECTION 3.1 Payment of Principal and Interest. The Issuer will duly
and punctually pay the principal of and interest on the Notes in accordance with
the terms of the Notes and this Indenture. Without limiting the foregoing,
subject to Section 8.2(c), the Issuer will cause to be distributed all amounts
on deposit in the Note Distribution Account on a Remittance Date deposited
therein pursuant to the Sale and Servicing Agreement for the benefit of the
Notes, to the Noteholders. Amounts properly withheld under the Code by any
Person from a payment to any Noteholder of interest and/or principal shall be
considered as having been paid by the Issuer to such Noteholder for all purposes
of this Indenture.
SECTION 3.2 Maintenance of Office or Agency. The Issuer will maintain
in the Borough of Manhattan, The City of New York, an office or agency where
Notes may be surrendered for registration of transfer or exchange, and where
notices and demands to or upon the Issuer in respect of the Notes and this
Indenture may be served. The Issuer hereby initially appoints the Trustee to
serve as its agent for the foregoing purposes. The Issuer will give prompt
written notice to the Trustee of the location, and of any change in the
location, of any such office or agency. If at any time the Issuer shall fail to
maintain any such office or agency or shall fail to furnish the Trustee with the
address thereof, such surrenders, notices and demands may be made or served at
the Corporate Trust Office, and the Issuer hereby appoints the Trustee as its
agent to receive all such surrenders, notices and demands.
SECTION 3.3 Money for Payments To Be Held in Trust. As provided in
Sections 8.2(a) and (b), all payments of amounts due and payable with respect to
any Notes that are to be made from amounts withdrawn from the Principal and
Interest Account and the Note Distribution Account pursuant to Section 8.2(c)
shall be made on behalf of the Issuer by the Trustee or by another Paying Agent,
and no amounts so withdrawn from the Principal and Interest Account and the Note
Distribution Account for payments of Notes shall be paid over to the Issuer
except as provided in this Section.
At least one Business Day prior to each Remittance Date and Redemption
Date, the Issuer shall deposit or cause to be deposited in the Note Distribution
Account an aggregate sum sufficient to pay the amounts then becoming due under
the Notes, such sum to be held in trust for the benefit of the Persons entitled
thereto and (unless the Paying Agent is the Trustee) shall promptly notify the
Trustee of its action or failure so to act.
The Issuer will cause each Paying Agent other than the Trustee to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee (and if the Trustee acts as Paying Agent, it hereby
so agrees), subject to the provisions of this Section, that such Paying Agent
will:
(i) hold all sums held by it for the payment of amounts due with
respect to the Notes in trust for the benefit of the Persons entitled
thereto until such sums shall be paid to such Persons or otherwise
disposed of as herein provided and pay such sums to such Persons as
herein provided;
(ii) give the Trustee notice of any default by the Issuer of
which it has actual knowledge (or any other obligor upon the Notes) in
the making of any payment required to be made with respect to the
Notes;
(iii) at any time during the continuance of any such default,
upon the written request of the Trustee, forthwith pay to the Trustee
all sums so held in trust by such Paying Agent;
(iv) immediately resign as a Paying Agent and forthwith pay to
the Trustee all sums held by it in trust for the payment of Notes if
at any time it ceases to meet the standards required to be met by a
Paying Agent at the time of its appointment; and
(v) comply with all requirements of the Code with respect to the
withholding from any payments made by it on any Notes of any
applicable withholding taxes imposed thereon and with respect to any
applicable reporting requirements in connection therewith.
The Issuer may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, by Issuer
Order direct any Paying Agent to pay to the Trustee all sums held in trust by
such Paying Agent, such sums to be held by the Trustee upon the same trusts as
those upon which the sums were held by such Paying Agent; and upon such a
payment by any Paying Agent to the Trustee, such Paying Agent shall be released
from all further liability with respect to such money.
Subject to applicable laws with respect to the escheat of funds, any
money held by the Trustee or any Paying Agent in trust for the payment of any
amount due with respect to any Note and remaining unclaimed for two years after
such amount has become due and payable shall be discharged from such trust and
be paid to the Issuer on Issuer Request; and the Holder of such Note shall
thereafter, as an unsecured general creditor, look only to the Issuer for
payment thereof (but only to the extent the amounts so paid to the Issuer), and
all liability of the Trustee or such Paying Agent with respect to such trust
money shall thereupon cease; provided, however, that the Trustee or such Paying
Agent, before being required to make any such repayment, shall at the expense of
the Issuer cause to be published once, in a newspaper published in the English
language, customarily published on each Business Day and of general circulation
in The City of New York, notice that such money remains unclaimed and that,
after a date specified therein, which shall not be less than 30 days from the
date of such publication, any unclaimed balance of such money then remaining
will be repaid to the Issuer. The Trustee shall also adopt and employ, at the
expense of the Issuer, any other reasonable means of notification of such
repayment (including, but not limited to, mailing notice of such repayment to
Holders whose Notes have been called but have not been surrendered for
redemption or whose right to or interest in moneys due and payable but not
claimed is determinable from the records of the Trustee or of any Paying Agent,
at the last address of record for each such Holder).
SECTION 3.4 Existence. Except as otherwise permitted by the provisions
of Section 3.10, the Issuer will keep in full effect its existence, rights and
franchises as a business trust under the laws of the State of Delaware (unless
it becomes, or any successor Issuer hereunder is or becomes, organized under the
laws of any other state or of the United States of America, in which case the
Issuer will keep in full effect its existence, rights and franchises under the
laws of such other jurisdiction) and will obtain and preserve its qualification
to do business in each jurisdiction in which such qualification is or shall be
necessary to protect the validity and enforceability of this Indenture, the
Notes, the Collateral and each other instrument or agreement included in the
Trust Estate.
SECTION 3.5 Protection of Trust Estate. The Issuer will from time to
time prepare (or shall cause to be prepared), execute and deliver all such
supplements and amendments hereto and all such financing statements,
continuation statements, instruments of further assurance and other instruments,
and will take such other action necessary or advisable to:
(i) maintain or preserve the lien and security interest and the
priority thereof) of this Indenture or carry out more effectively the
purposes hereof;
(ii) perfect, publish notice of or protect the validity of any
Grant made or to be made by this Indenture;
(iii) enforce any of the Collateral; or
(iv) preserve and defend title to the Trust Estate and the rights
of the Trustee and the Noteholders in such Trust Estate against the
claims of all persons and parties.
The Issuer hereby designates the Trustee its agent and attorney- in-fact to
execute any financing statement, continuation statement or other instrument
required to be executed pursuant to this Section; it being understood that the
Trustee has no duty to determine whether any filing or recording is necessary
hereunder.
SECTION 3.6 Opinions as to Trust Estate. (a) On the Closing Date, the
Issuer shall furnish to the Trustee an Opinion of Counsel either stating that,
in the opinion of such counsel, such action has been taken with respect to the
recording and filing of this Indenture, any indentures supplemental hereto, and
any other requisite documents, and with respect to the execution and filing of
any financing statements and continuation statements, as are necessary to
perfect and make effective the lien and security interest of this Indenture and
reciting the details of such action, or stating that, in the opinion of such
counsel, no such action is necessary to make such lien and security interest
effective.
(b) Within 120 days after the beginning of each calendar year,
beginning with the first calendar year beginning more than three months after
the Cut-Off Date, the Issuer shall furnish to the Trustee an Opinion of Counsel
either stating that, in the opinion of such counsel, such action has been taken
with respect to the recording, filing, re-recording and refiling of this
Indenture, any indentures supplemental hereto and any other requisite documents
and with respect to the execution and filing of any financing statements and
continuation statements as are necessary to maintain the lien and security
interest created by this Indenture and reciting the details of such action or
stating that in the opinion of such counsel no such action is necessary to
maintain such lien and security interest. Such Opinion of Counsel shall also
describe the recording, filing, re-recording and refiling of this Indenture, any
indentures supplemental hereto and any other requisite documents and the
execution and filing of any financing statements and continuation statements
that will, in the opinion of such counsel, be required to maintain the lien and
security interest of this Indenture until January 30 in the following calendar
year.
SECTION 3.7 Performance of Obligations; Servicing of The Mortgage
Loans.
(a) The Issuer will not take any action and will use its best efforts
not to permit any action to be taken by others that would release any Person
from any of such Person's material covenants or obligations under any instrument
or agreement included in the Trust Estate or that would result in the amendment,
hypothecation, subordination, termination or discharge of, or impair the
validity or effectiveness of, any such instrument or agreement, except as
ordered by any bankruptcy or other cou or as expressly provided in this
Indenture, the Basic Documents or such other instrument or agreement.
(b) The Issuer may contract with other Persons to assist it in
performing its duties under this Indenture, and any performance of such duties
by a Person identified to the Trustee in an Officer's Certificate of the Issuer
shall be deemed to be action taken by the Issuer. Initially, the Issuer has
contracted with the Servicer to assist the Issuer in performing its duties under
this Indenture.
(c) The Issuer will punctually perform and observe all of its
obligations and agreements contained in this Indenture, the Basic Documents and
in the instruments and agreements included in the Trust Estate, including but
not limited to preparing (or causing to prepared) and filing (or causing to be
filed) all UCC financing statements and continuation statements required to be
filed by the terms of this Indenture and the Sale and Servicing Agreement in
accordance with and within the time periods provided for herein and therein.
Except as otherwise expressly provided therein, the Issuer shall not waive,
amend, modify, supplement or terminate any Basic Document or any provision
thereof without the consent of the Trustee or the Holders of at least a majority
of the Outstanding Amount of the Notes.
(d) If the Issuer shall have knowledge of the occurrence of a Servicer
Default under the Sale and Servicing Agreement, the Issuer shall promptly notify
the Trustee and the Rating Agencies thereof in accordance with Section 11.4, and
shall specify in such notice the action, if any, the Issuer is taking in respect
of such default. If a Servicer Default of which the Issuer has knowledge shall
arise from the failure of the Servicer to perform any of its duties or
obligations under the Sale an Servicing Agreement with respect to the Mortgage
Loans, the Issuer shall take all reasonable steps available to it to remedy such
failure.
(e) As promptly as possible after the giving of notice of termination
to the Servicer of the Servicer's rights and powers pursuant to Section 10.01 of
the Sale and Servicing Agreement, the Issuer shall appoint a successor servicer
(the "Successor Servicer"), and such Successor Servicer shall accept its
appointment by a written assumption in a form acceptable to the Trustee. In the
event that a Successor Servicer has not been appointed and accepted its
appointment at the time when the Servicer ceases to act as Servicer, the Trustee
without further action shall automatically be appointed the Successor Servicer.
The Trustee may resign as the Servicer by giving written notice of such
resignation to the Issuer and in such event will be released from such duties
and obligations, such release not to be effective until the date a new servicer
enters into a servicing agreement with the Issuer as provided below. Upon
delivery of any such notice to the Issuer, the Issuer shall obtain a new
servicer as the Successor Servicer under the Sale and Servicing Agreement. Any
Successor Servicer other than the Trustee shall (i) be an established financial
institution having a net worth of not less than $50,000,000 and whose regular
business includes the servicing of Mortgage Loans and (ii) enter into a
servicing agreement with the Issuer having substantially the same provisions as
the provisions of the Sale and Servicing Agreement applicable to the Servicer.
If within 30 days after the delivery of the notice referred to above, the Issuer
shall not have obtained such a new servicer, the Trustee may appoint, or may
petition a court of competent jurisdiction to appoint, a Successor Servicer. In
connection with any such appointment, the Trustee may make such arrangements for
the compensation of such successor as it and such successor shall agree, subject
to the limitations set forth below and in the Sale and Servicing Agreement, and
in accordance with Section 10.02 of the Sale and Servicing Agreement, the Issuer
shall enter into an agreement with such successor for the servicing of the
Mortgage Loans (such agreement to be in form and substance satisfactory to the
Trustee). If the Trustee shall succeed to the Servicer's duties as servicer of
the Mortgage Loans as provided herein, it shall do so in its individual capacity
and not in its capacity as Trustee and, accordingly, the provisions of Article
VI hereof shall be inapplicable to the Trustee in its duties as the successor to
the Servicer and the servicing of the Mortgage Loans. In case the Trustee shall
become successor to the Servicer under the Sale and Servicing Agreement, the
Trustee shall be entitled to appoint as Servicer any one of its Affiliates, or
delegate any of its responsibilities as Servicer to agents, subject to the terms
of the Sale and Servicing Agreement, provided that such appointment or
delegation shall not affect or alter in any way the liability of the Trustee as
a successor for the performance of the duties and obligations of the Servicer in
accordance with the terms hereof.
(f) Upon an Authorized Officer of the Issuer acquiring actual
knowledge of any termination of the Servicer's rights and powers pursuant to the
Sale and Servicing Agreement, the Issuer shall promptly notify the Trustee. As
soon as a Successor Servicer (other than the Trustee) is appointed, the Issuer
shall notify the Trustee of such appointment, specifying in such notice the name
and address of such Successor Servicer.
(g) Without derogating from the absolute nature of the assignment
granted to the Trustee under this Indenture or the rights of the Trustee
hereunder, the Issuer agrees that, unless such action is specifically permitted
hereunder or under the Basic Documents, it will not, without the prior written
consent of the Trustee or the Holders of at least a majority in Outstanding
Amount of the Notes, amend, modify, waive, supplement, terminate or surrender,
or agree to any amendment, modification, supplement, termination, waiver or
surrender of, the terms of any Collateral or the Basic Documents, or waive
timely performance or observance by the Servicer, or the Representative under
the Sale and Servicing Agreement; provided, however, that no such amendment
shall (i) increase or reduce in any manner the amount of, or accelerate or delay
the timing of, distributions that are required to be made for the benefit of the
Noteholders, or (ii) reduce the aforesaid percentage of the Notes which are
required to consent to any such amendment, without the consent of the Holders of
all the Outstanding Notes. If any such amendment, modification, supplement or
waiver shall be so consented to by the Trustee or such Holders, the Issuer
agrees, promptly following a request by the Trustee to do so, to execute and
deliver, in its own name and at its own expense, such agreements, instruments,
consents and other documents as the Trustee may deem necessary or appropriate in
the circumstances.
SECTION 3.8 Negative Covenants. So long as any Notes are Outstanding,
the Issuer shall not:
(i) except as expressly permitted by this Indenture or the Basic
Documents, sell, transfer, exchange or otherwise dispose of any of the
properties or assets of the Issuer, including those included in the
Trust Estate, unless directed to do so by the Trustee;
(ii) claim any credit on, or make any deduction from the
principal or interest payable in respect of, the Notes (other than
amounts properly withheld from such payments under the Code) or assert
any claim against any present or former Noteholder by reason of the
payment of the taxes levied or assessed upon any part of the Trust
Estate; or
(iii) permit the validity or effectiveness of this Indenture to
be impaired, or permit the lien of this Indenture to be amended,
hypothecated, subordinated, terminated or discharged, or permit any
Person to be released from any covenants or obligations with respect
to the Notes under this Indenture except as may be expressly permitted
hereby, (B) permit any lien, charge, excise, claim, security interest,
mortgage or other encumbrance (other than the lien of this Indenture)
to be created on or extend to or otherwise arise upon or burden the
Trust Estate or any part thereof or any interest therein or the
proceeds thereof (other than tax liens, mechanics' liens and other
liens that arise by operation of law, in each case on a Mortgage Loan
and arising solely as a result of an action or omission of the related
obligor) or (C) permit the lien of this Indenture not to constitute a
valid first priority (other than with respect to any such tax,
mechanics' or other lien) security interest in the Trust Estate.
SECTION 3.9 Annual Statement as to Compliance. The Issuer will deliver
to the Trustee, within 120 days after the end of each fiscal year of the Issuer
(commencing with the fiscal year 199_ ), and otherwise in compliance with the
requirements of TIA Section 314(a)(4) an Officer's Certificate stating, as to
the Authorized Officer signing such Officer's Certificate, that
(i) a review of the activities of the Issuer during such year and
of performance under this Indenture has been made under such
Authorized Officer's supervision; and
(ii) to the best of such Authorized Officer's knowledge, based on
such review, the Issuer has complied with all conditions and covenants
under this Indenture throughout such year, or, if there has been a
default in the compliance of any such condition or covenant,
specifying each such default known to such Authorized Officer and the
nature and status thereof.
SECTION 3.10 Issuer May Consolidate, Etc. Only on Certain Terms. (a)
The Issuer shall not consolidate or merge with or into any other Person, unless
(i) the Person (if other than the Issuer) formed by or surviving
such consolidation or merger shall be a Person organized and existing
under the laws of the United States of America or any state and shall
expressly assume, by an indenture supplement hereto, executed and
delivered to the Trustee, in form satisfactory to the Trustee, the due
and punctual payment of the principal of and interest on all Notes and
the performance or observance of every agreement and covenant of this
Indenture on the part of the Issuer to be performed or observed, all
as provided herein;
(ii) immediately after giving effect to such transaction, no
Default or Event of Default shall have occurred and be continuing;
(iii) the Rating Agency Condition shall have been satisfied with
respect to such transaction;
(iv) the Issuer shall have received an Opinion of Counsel (and
shall have delivered copies thereof to the Trustee) to the effect that
such transaction will not have any material adverse tax consequence to
the Trust, any Noteholder or any Certificateholder;
(v) any action as is necessary to maintain the lien and security
interest created by this Indenture shall have been taken; and
(vi) the Issuer shall have delivered to the Trustee an Officer's
Certificate and an Opinion of Counsel each stating that such
consolidation or merger and such supplemental indenture comply with
this Article III and that all conditions precedent herein provided for
relating to such transaction have been complied with (including any
filing required by the Exchange Act).
(b) The Issuer shall not convey or transfer all or substantially all
of its properties or assets, including those included in the Trust Estate, to
any Person, unless
(i) the Person that acquires by conveyance or transfer the
properties and assets of the Issuer the conveyance or transfer of
which is hereby restricted shall (A) be a United States citizen or a
Person organized and existing under the laws of the United States of
America or any state, (B) expressly assume, by an indenture supplement
hereto, executed and delivered to the Trustee, in form satisfactory to
the Trustee, the due and punctual payment of the principal of and
interest on all Notes and the performance or observance of every
agreement and covenant of this Indenture on the part of the Issuer to
be performed or observed, all as provided herein, (C) expressly agree
by means of such supplemental indenture that all right, title and
interest so conveyed or transferred shall be subject and subordinate
to the rights of Holders of the Notes, (D) unless otherwise provided
in such supplemental indenture, expressly agree to indemnify, defend
and hold harmless the Issuer against and from any loss, liability or
expense arising under or related to this Indenture and the Notes and
(E) expressly agree by means of such supplemental indenture that such
Person (or if a group of persons, then one specified Person) shall
prepare (or cause to be prepared) and make all filings with the
Commission (and any other appropriate Person) required by the Exchange
Act in connection with the Notes;
(ii) immediately after giving effect to such transaction, no
Default or Event of Default shall have occurred and be continuing;
(iii) the Rating Agency Condition shall have been satisfied with
respect to such transaction;
(iv) the Issuer shall have received an Opinion of Counsel (and
shall have delivered copies thereof to the Trustee) to the effect that
such transaction will not have any material adverse tax consequence to
the Trust, any Noteholder or any Certificateholder;
(v) any action as is necessary to maintain the lien and security
interest created by this Indenture shall have been taken; and
(vi) the Issuer shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel each stating that such
conveyance or transfer and such supplemental indenture comply with
this Article III and that all conditions precedent herein provided for
relating to such transaction have been complied with (including any
filing required by the Exchange Act).
SECTION 3.11 Successor or Transferee. (a) Upon any consolidation or
merger of the Issuer in accordance with Section 3.10(a), the Person formed by or
surviving such consolidation or merger (if other than the Issuer) shall succeed
to, and be substituted for, and may exercise every right and power of, the
Issuer under this Indenture with the same effect as if such Person had been
named as the Issuer herein.
(b) Upon a conveyance or transfer of all the assets and properties of
the Issuer pursuant to Section 3.10 (b), The Money Store Trust 1997 -_ will be
released from every covenant and agreement of this Indenture to be observed or
performed on the part of the Issuer with respect to the Notes immediately upon
the delivery of written notice to the Trustee stating that The Money Store Trust
1997 -_ is to be so released.
SECTION 3.12 No Other Business. The Issuer shall not engage in any
business other than financing, purchasing, owning, selling and managing the
Mortgage Loans in the manner contemplated by this Indenture and the Basic
Documents and activities incidental thereto.
SECTION 3.13 No Borrowing. The Issuer shall not issue, incur, assume,
guarantee or otherwise become liable, directly or indirectly, for any
indebtedness except for the Notes.
SECTION 3.14 Servicer's Obligations. The Issuer shall cause the
Servicer to comply with Sections 5.04, 5.05, 5.07 and 7.08 of the Sale and
Servicing Agreement.
SECTION 3.15 Guarantees, Loans, Advances and Other Liabilities. Except
as contemplated by the Sale and Servicing Agreement or this Indenture, the
Issuer shall not make any loan or advance or credit to, or guarantee (directly
or indirectly or by an instrument having the effect of assuring another's
payment or performance on any obligation or capability of so doing or
otherwise), endorse or otherwise become contingently liable, directly or
indirectly, in connection with the obligations, sto or dividends of, or own,
purchase, repurchase or acquire (or agree contingently to do so) any stock,
obligations, assets or securities of, or any other interest in, or make any
capital contribution to, any other Person.
SECTION 3.16 Capital Expenditures. The Issuer shall not make any
expenditure (by long-term or operating lease or otherwise) for capital assets
(either realty or personalty).
SECTION 3.17 [Reserved]
SECTION 3.18 Restricted Payments. The Issuer shall not, directly or
indirectly, (i) pay any dividend or make any distribution (by reduction of
capital or otherwise), whether in cash, property, securities or a combination
thereof, to the Owner Trustee or any owner of a beneficial interest in the
Issuer or otherwise with respect to any ownership or equity interest or security
in or of the Issuer or to the Servicer, (ii) redeem, purchase, retire or
otherwise acquire for value any such owners or equity interest or security or
(iii) set aside or otherwise segregate any amounts for any such purpose;
provided, however, that the Issuer may make, or cause to be made, distributions
to the Servicer, the Owner Trustee, the Trustee and the Certificateholders as
permitted by, and to the extent funds are available for such purpose under the
Sale and Servicing Agreement or Trust Agreement. The Issuer will not, directly
or indirectly, make payments to or distributions from the Principal and Interest
Account except in accordance with this Indenture and the Basic Documents.
SECTION 3.19 Notice of Events of Default. The Issuer agrees to give
the Trustee and the Rating Agencies prompt written notice of each Event of
Default hereunder and each default on the part of the Servicer and the
Representative of its obligations under the Sale and Servicing Agreement of
which an Authorized Officer of the Issuer acquires actual knowledge.
SECTION 3.20 Further Instruments and Acts. Upon request of the
Trustee, the Issuer will execute and deliver such further instruments and do
such further acts as may be reasonably necessary or proper to carry out more
effectively the purpose of this Indenture.
ARTICLE IV
Satisfaction and Discharge
SECTION 4.1 Satisfaction and Discharge of Indenture. This Indenture
shall cease to be of further effect with respect to the Notes except as to (i)
rights of registration of transfer and exchange, (ii) substitution of mutilated,
destroyed, lost or stolen Notes, (iii) rights of Noteholders to receive payments
of principal thereof and interest thereon, (iv) Sections 3.3, 3.4, 3.5, 3.8,
3.10, 3.12 and 3.13, (v) the rights, obligations and immunities of the Trustee
hereunder (including the righ of the Trustee under Section 6.7 and the
obligations of the Trustee under Section 4.2) and (vi) the rights of Noteholders
as beneficiaries hereof with respect to the property so deposited with the
Trustee payable to all or any of them, and the Trustee, on demand of and at the
expense of the Issuer, shall execute proper instruments acknowledging
satisfaction and discharge of this Indenture with respect to the Notes, when
(A) either
(1) all Notes theretofore authenticated and delivered (other than
(i) Notes that have been destroyed, lost or stolen and that have been
replaced or paid as provided in Section 2.5 and (ii) Notes for whose
payment money has theretofore been deposited in trust or segregated
and held in trust by the Issuer and thereafter repaid to the Issuer or
discharged from such trust, as provided in Section 3.3) have been
delivered to the Trustee for cancellation; or
(2) all Notes not theretofore delivered to the Trustee for
cancellation
(i) have become due and payable,
(ii) will become due and payable at the Final Scheduled
Remittance Date within one year, or
(iii) are to be called for redemption within one year under
arrangements satisfactory to the Trustee for the giving of notice
of redemption by the Trustee in the name, and at the expense, of
the Issuer, and the Issuer, in the case of (i), (ii) or (iii)
above, has irrevocably deposited or caused to be irrevocably
deposited with the Trustee cash or direct obligations of or
obligations guaranteed by the United States of America (which
will mature prior to the date such amounts are payable), in trust
for such purpose, in an amount sufficient to pay and discharge
the entire indebtedness on such Notes not theretofore delivered
to the Trustee for cancellation when due to the Final Scheduled
Remittance Date or Redemption Date (if Notes shall have been
called for redemption pursuant to Section 10.1(a)), as the case
may be;
(B) the Issuer has paid or caused to be paid all other sums payable
hereunder by the Issuer; and
(C) the Issuer has delivered to the Trustee an Officer's Certificate,
an Opinion of Counsel and (if required by the TIA or the Trustee) an Independent
Certificate from a firm of certified public accountants, each meeting the
applicable requirements of Section 11.1(a) and each stating that all conditions
precedent herein provided for relating to the satisfaction and discharge of this
Indenture have been complied with.
SECTION 4.2 Application of Trust Money. All moneys deposited with the
Trustee pursuant to Section 4.1 hereof shall be held in trust and applied by it,
in accordance with the provisions of the Notes and this Indenture, to the
payment, either directly or through any Paying Agent, as the Trustee may
determine, to the Holders of the particular Notes for the payment or redemption
of which such moneys have been deposited with the Trustee, of all sums due and
to become due thereon for principal interest; but such moneys need not be
segregated from other funds except to the extent required herein or in the Sale
and Servicing Agreement or required by law.
SECTION 4.3 Repayment of Moneys Held by Paying Agent. In connection
with the satisfaction and discharge of this Indenture with respect to the Notes,
all moneys then held by any Paying Agent other than the Trustee under the
provisions of this Indenture with respect to such Notes shall, upon demand of
the Issuer, be paid to the Trustee to be held and applied according to Section
3.3 and thereupon such Paying Agent shall be released from all further liability
with respect to such moneys.
SECTION 4.4 Notice. Upon the satisfaction and discharge of this
Indenture with respect to the Notes, the Trustee shall notify each Rating Agency
of such satisfaction and discharge.
ARTICLE V
Remedies
SECTION 5.1 Events of Default. "Event of Default," wherever used
herein, means any one of the following events (whatever the reason for such
Event of Default and whether it shall be voluntary or involuntary or be effected
by operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body):
(i) default in the payment of any interest on any Note when
the same becomes due and payable, and such default shall continue
for a period of five days; or
(ii) default in the payment of the principal of or any
installment of the principal of any Note when the same becomes
due and payable; or
(iii) default in the observance or performance of any
covenant or agreement of the Issuer made in this Indenture (other
than a covenant or agreement, a default in the observance or
performance of which is elsewhere in this Section specifically
dealt with), or any representation or warranty of the Issuer made
in this Indenture or in any certificate or other writing
delivered pursuant hereto or in connection herewith proving to
have been incorrect in any material respect as of the time when
the sam shall have been made, and such default shall continue or
not be cured, or the circumstance or condition in respect of
which such misrepresentation or warranty was incorrect shall not
have been eliminated or otherwise cured, for a period of 30 days
after there shall have been given, by registered or certified
mail, to the Issuer by the Trustee or to the Issuer and the
Trustee by the Holders of at least 25% of the Outstanding Amount
of the Notes, a written notice specifying such default or
incorrect representation or warranty and requiring it to be
remedied and stating that such notice is a "Notice of Default"
hereunder; or
(iv) the filing of a decree or order for relief by a court
having jurisdiction in the premises in respect of the Issuer or
any substantial part of the Trust Estate in an involuntary case
under any applicable Federal or state bankruptcy, insolvency or
other similar law now or hereafter in effect, or appointing a
receiver, liquidator, assignee, custodian, trustee, sequestrator
or similar official of the Issuer or for any substantial part of
the Trust Estate, or ordering the winding-up or liquidation of
the Issuer's affairs, and such decree or order shall remain
unstayed and in effect for a period of 30 consecutive days; or
(v) the commencement by the Issuer of a voluntary case under
any applicable Federal or state bankruptcy, insolvency or other
similar law now or hereafter in effect, or the consent by the
Issuer to the entry of an order for relief in an involuntary case
under any such law, or the consent by the Issuer to the
appointment or taking possession by a receiver, liquidator,
assignee, custodian, trustee, sequestrator or similar official of
the Issuer or for any substantial part of the Trust Estate, or
the making by the Issuer of any general assignment for the
benefit of creditors, or the failure by the Issuer generally to
pay its debts as such debts become due, or the taking of action
by the Issuer in furtherance of any of the foregoing.
The Issuer shall deliver to the Trustee, within five days after the
occurrence thereof, written notice in the form of an Officer's Certificate of
any event of which an Authorized Officer of the Issuer has acquired actual
knowledge which with the giving of notice and the lapse of time would become an
Event of Default under clause (iii), its status and what action the Issuer is
taking or proposes to take with respect thereto.
SECTION 5.2 Acceleration of Maturity; Rescission and Annulment. If an
Event of Default should occur and be continuing, then and in every such case the
Trustee or the Holders of Notes representing not less than a majority of the
Outstanding Amount of the Notes may declare all the Notes to be immediately due
and payable, by a notice in writing to the Issuer (and to the Trustee if given
by Noteholders), and upon any such declaration the unpaid principal amount of
such Notes, together with accrued and unpaid interest thereon through the date
of acceleration, shall become immediately due and payable.
At any time after such declaration of acceleration of maturity has
been made and before a judgment or decree for payment of the money due has been
obtained by the Trustee as hereinafter in this Article V provided, the Holders
of Notes representing a majority of the Outstanding Amount of the Notes, by
written notice to the Issuer and the Trustee, may rescind and annul such
declaration and its consequences if:
(i) the Issuer has paid or deposited with the Trustee a sum
sufficient to pay
(A) all payments of principal of and interest on all Notes
and all other amounts that would then be due hereunder or upon
such Notes if the Event of Default giving rise to such
acceleration had not occurred; and
(B) all sums paid or advanced by the Trustee hereunder and
the reasonable compensation, expenses, disbursements and advances
of the Trustee and its agents and counsel; and
(ii) all Events of Default, other than the nonpayment of the
principal of the Notes that has become due solely by such
acceleration, have been cured or waived as provided in Section
5.12.
No such rescission shall affect any subsequent default or impair any
right consequent thereto.
SECTION 5.3 Collection of Indebtedness and Suits for Enforcement by
Trustee. (a) The Issuer covenants that if (i) default is made in the payment of
any interest on any Note when the same becomes due and payable, and such default
continues for a period of five days, or (ii) default is made in the payment of
the principal of or any installment of the principal of any Note when the same
becomes due and payable, the Issuer will, upon demand of the Trustee, pay to it,
for the benefit of the Holders of the Notes, the whole amount then due and
payable on such Notes for principal and interest, with interest upon the overdue
principal, and, to the extent payment at such rate of interest shall be legally
enforceable, upon overdue installments of interest, at the rate borne by the
Notes and in addition thereto such further amount as shall be sufficient to
cover the costs and expenses of collection, including the reasonable
compensation, expenses, disbursements and advances of the Trustee and its agents
and counsel.
(b) In case the Issuer shall fail forthwith to pay such amounts upon
such demand, the Trustee, in its own name and as trustee of an express trust,
may institute a proceeding for the collection of the sums so due and unpaid, and
may prosecute such proceeding to judgment or final decree, and may enforce the
same against the Issuer or other obligor upon such Notes and collect in the
manner provided by law out of the property of the Issuer or other obligor upon
such Notes, wherever situated, the moneys adjudged or decreed to be payable.
(c) If an Event of Default occurs and is continuing, the Trustee may,
as more particularly provided in Section 5.4, in its discretion, proceed to
protect and enforce its rights and the rights of the Noteholders, by such
appropriate proceedings as the Trustee shall deem most effective to protect and
enforce any such rights, whether for the specific enforcement of any covenant or
agreement in this Indenture or in aid of the exercise of any power granted
herein, or to enforce any other proper remedy or legal or equitable right vested
in the Trustee by this Indenture or by law.
(d) In case there shall be pending, relative to the Issuer or any
other obligor upon the Notes or any Person having or claiming an ownership
interest in the Trust Estate, proceedings under Title 11 of the United States
Code or any other applicable Federal or state bankruptcy, insolvency or other
similar law, or in case a receiver, assignee or trustee in bankruptcy or
reorganization, liquidator, sequestrator or similar official shall have been
appointed for or taken possession of the Issuer its property or such other
obligor or Person, or in case of any other comparable judicial proceedings
relative to the Issuer or other obligor upon the Notes, or to the creditors or
property of the Issuer or such other obligor, the Trustee, irrespective of
whether the principal of any Notes shall then be due and payable as therein
expressed or by declaration or otherwise and irrespective of whether the Trustee
shall have made any demand pursuant to the provisions of this Section, shall be
entitled and empowered, by intervention in such proceedings or otherwise:
(i) to file and prove a claim or claims for the whole amount
of principal and interest owing and unpaid in respect of the
Notes and to file such other papers or documents as may be
necessary or advisable in order to have the claims of the Trustee
(including any claim for reasonable compensation to the Trustee
and each predecessor Trustee, and their respective agents,
attorneys and counsel, and for reimbursement of all expenses and
liabilities incurred, and all advances made, by the Trustee and
each predecessor Trustee, except as a result of negligence, bad
faith or willful misconduct) and of the Noteholders allowed in
such proceedings;
(ii) unless prohibited by applicable law and regulations, to
vote on behalf of the Holders of Notes in any election of a
trustee, a standby trustee or person performing similar functions
in any such proceedings;
(iii) to collect and receive any moneys or other property
payable or deliverable on any such claims and to distribute all
amounts received with respect to the claims of the Noteholders
and of the Trustee on their behalf; and
(iv) to file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the
claims of the Trustee or the Holders of Notes allowed in any
judicial proceedings relative to the Issuer, its creditors and
its property;
and any trustee, receiver, liquidator, custodian or other similar official in
any such proceeding is hereby authorized by each of such Noteholders to make
payments to the Trustee, and, in the event that the Trustee shall consent to the
making of payments directly to such Noteholders, to pay to the Trustee such
amounts as shall be sufficient to cover reasonable compensation to the Trustee,
each predecessor Trustee and their respective agents, attorneys and counsel, and
all other expenses and liabilities incurred, and all advances made, by the
Trustee and each predecessor Trustee except as a result of negligence or bad
faith.
(e) Nothing herein contained shall be deemed to authorize the Trustee
to authorize or consent to or vote for or accept or adopt on behalf of any
Noteholder any plan of reorganization, arrangement, adjustment or composition
affecting the Notes or the rights of any Holder thereof or to authorize the
Trustee to vote in respect of the claim of any Noteholder in any such proceeding
except, as aforesaid, to vote for the election of a trustee in bankruptcy or
similar person.
(f) All rights of action and of asserting claims under this
Indenture, or under any of the Notes, may be enforced by the Trustee without the
possession of any of the Notes or the production thereof in any trial or other
proceedings relative thereto, and any such action or proceedings instituted by
the Trustee shall be brought in its own name as trustee of an express trust, and
any recovery of judgment, subject to the payment of the expenses, disbursements
and compensation of the Trustee, each predecessor Trustee and their respective
agents and attorneys, shall be for the ratable benefit of the Holders of the
Notes.
(g) In any proceedings brought by the Trustee (and also any
proceedings involving the interpretation of any provision of this Indenture to
which the Trustee shall be a party), the Trustee shall be held to represent all
the Holders of the Notes, and it shall not be necessary to make any Noteholder a
party to any such proceedings.
SECTION 5.4 Remedies; Priorities. (a) If an Event of Default shall
have occurred and be continuing, the Trustee may do one or more of the following
(subject to Section 5.5):
(i) institute proceedings in its own name and as trustee of
an express trust for the collection of all amounts then payable
on the Notes or under this Indenture with respect thereto,
whether by declaration or otherwise, enforce any judgment
obtained, and collect from the Issuer and any other obligor upon
such Notes moneys adjudged due;
(ii) institute proceedings from time to time for the
complete or partial foreclosure of this Indenture with respect to
the Trust Estate;
(iii) exercise any remedies of a secured party under the UCC
and take any other appropriate action to protect and enforce the
rights and remedies of the Trustee and the Holders of the Notes;
and
(iv) sell the Trust Estate or any portion thereof or rights
or interest therein, at one or more public or private sales
called and conducted in any manner permitted by law;
provided, however, that the Trustee may not sell or otherwise
liquidate the Trust Estate following an Event of Default, other
than an Event of Default described in Section 5.1(i) or (ii),
unless (A) the Holders of 100% of the Outstanding Amount of the
Notes consent thereto, (B) the proceeds of such sale or
liquidation distributable to the Noteholders are sufficient to
discharge in full all amounts then due and unpaid upon such Notes
for principal and interest or (C) the Trustee determines that the
Trust Estate will not continue to provide sufficient funds for
the payment of principal of and interest on the Notes as they
would have become due if the Notes had not been declared due and
payable, and the Trustee obtains the consent of Holders of
66-2/3% of the Outstanding Amount of the Notes. In determining
such sufficiency or insufficiency with respect to clause (B) and
(C), the Trustee may, but need not, obtain and rely upon an
opinion of an Independent investment banking or accounting firm
of national reputation as to the feasibility of such proposed
action and as to the sufficiency of the Trust Estate for such
purpose.
(b) If the Trustee collects any money or property pursuant
to this Article V, it shall pay out such money or property (and
other amounts including amounts held on deposit in the Reserve
Account) held as Collateral for the benefit of the Noteholders in
the following order:
FIRST: to the Trustee for amounts due under Section 6.7;
SECOND: to Noteholders for amounts due and unpaid on the
Notes for interest, ratably, without preference or priority of
any kind, according to the amounts due and payable on the Notes
for interest;
THIRD: to Noteholders for amounts due and unpaid on the
Notes for principal, ratably, without preference or priority of
any kind, according to the amounts due and payable on the Notes
for principal; and
FOURTH: to the Issuer for distribution to the
Certificateholders.
The Trustee may fix a record date and payment date for any payment to
Noteholders pursuant to this Section. At least 15 days before such record date,
the Issuer shall mail to each Noteholder and the Trustee a notice that states
the record date, the payment date and the amount to be paid.
SECTION 5.5 Optional Preservation of the Mortgage Loans. If the Notes
have been declared to be due and payable under Section 5.2 following an Event of
Default and such declaration and its consequences have not been rescinded and
annulled, the Trustee may, but need not, elect to maintain possession of the
Trust Estate. It is the desire of the parties hereto and the Noteholders that
there be at all times sufficient funds for the payment of principal of and
interest on the Notes, and the Trustee shall take such desire into account when
determining whether or not to maintain possession of the Trust Estate. In
determining whether to maintain possession of the Trust Estate, the Trustee may,
but need not, obtain and rely upon an opinion of an Independent investment
banking or accounting firm of national reputation as to the feasibility of such
proposed action and as to the sufficiency of the Trust Estate for such purpose.
SECTION 5.6 Limitation of Suits. No Holder of any Note shall have any
right to institute any proceeding, judicial or otherwise, with respect to this
Indenture, or for the appointment of a receiver or trustee, or for any other
remedy hereunder, unless:
(i) such Holder has previously given written notice to the
Trustee of a continuing Event of Default;
(ii) the Holders of not less than 25% of the Outstanding
Amount of the Notes have made written request to the Trustee to
institute such proceeding in respect of such Event of Default in
its own name as Trustee hereunder;
(iii) such Holder or Holders have offered to the Trustee
indemnity reasonably satisfactory to it against the costs,
expenses and liabilities to be incurred in complying with such
request;
(iv) the Trustee for 60 days after its receipt of such
notice, request and offer of indemnity has failed to institute
such proceedings; and
(v) no direction inconsistent with such written request has
been given to the Trustee during such 60-day period by the
Holders of a majority of the Outstanding Amount of the Notes;
it being understood and intended that no one or more Holders of Notes shall have
any right in any manner whatever by virtue of, or by availing of, any provision
of this Indenture to affect, disturb or prejudice the rights of any other
Holders of Notes or to obtain or to seek to obtain priority or preference over
any other Holders or to enforce any right under this Indenture, except in the
manner herein provided.
In the event the Trustee shall receive conflicting or inconsistent
requests and indemnity from two or more groups of Holders of Notes, each
representing less than a majority of the Outstanding Amount of the Notes, the
Trustee in its sole discretion may determine what action, if any, shall be
taken, notwithstanding any other provisions of this Indenture.
SECTION 5.7 Unconditional Rights of Noteholders To Receive Principal
and Interest. Notwithstanding any other provisions in this Indenture, the Holder
of any Note shall have the right, which is absolute and unconditional, to
receive payment of the principal of and interest, if any, on such Note on or
after the respective due dates thereof expressed in such Note or in this
Indenture (or, in the case of redemption, on or after the Redemption Date) and
to institute suit for the enforcement of any such payment, and such right shall
not be impaired without the consent of such Holder.
SECTION 5.8 Restoration of Rights and Remedies. If the Trustee or any
Noteholder has instituted any proceeding to enforce any right or remedy under
this Indenture and such proceeding has been discontinued or abandoned for any
reason or has been determined adversely to the Trustee or to such Noteholder,
then and in every such case the Issuer, the Trustee and the Noteholders shall,
subject to any determination in such Proceeding, be restored severally and
respectively to their former positi hereunder, and thereafter all rights and
remedies of the Trustee and the Noteholders shall continue as though no such
proceeding had been instituted.
SECTION 5.9 Rights and Remedies Cumulative. No right or remedy herein
conferred upon or reserved to the Trustee or to the Noteholders is intended to
be exclusive of any other right or remedy, and every right and remedy shall, to
the extent permitted by law, be cumulative and in addition to every other right
and remedy given hereunder or now or hereafter existing at law or in equity or
otherwise. The assertion or employment of any right or remedy hereunder, or
otherwise, shall not prevent the concurrent assertion or employment of any other
appropriate right or remedy.
SECTION 5.10 Delay or Omission Not a Waiver. No delay or omission of
the Trustee or any Holder of any Note to exercise any right or remedy accruing
upon any Default or Event of Default shall impair any such right or remedy or
constitute a waiver of any such Default or Event of Default or an acquiescence
therein. Every right and remedy given by this Article V or by law to the Trustee
or to the Noteholders may be exercised from time to time, and as often as may be
deemed expedient, by the Trustee or by the Noteholders, as the case may be.
SECTION 5.11 Control by Noteholders. The Holders of a majority of the
Outstanding Amount of the Notes shall have the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee
with respect to the Notes or exercising any trust or power conferred on the
Trustee; provided that
(i) such direction shall not be in conflict with any rule of
law or with this Indenture;
(ii) subject to the express terms of Section 5.4, any
direction to the Trustee to sell or liquidate the Trust Estate
shall be by the Holders of Notes representing not less than 100%
of the Outstanding Amount of the Notes;
(iii) if the conditions set forth in Section 5.5 have been
satisfied and the Trustee elects to retain the Trust Estate
pursuant to such Section, then any direction to the trustee by
Holders of Notes representing less than 100% of the Outstanding
Amount of the Notes to sell or liquidate the Trust Estate shall
be of no force and effect; and
(iv) the Trustee may take any other action deemed proper by
the Trustee that is not inconsistent with such direction;
provided, however, that, subject to Section 6.1, the Trustee need not take any
action that it determines might involve it in liability or might materially
adversely affect the rights of any Noteholders not consenting to such action.
SECTION 5.12 Waiver of Past Defaults. Prior to the declaration of the
acceleration of the maturity of the Notes as provided in Section 5.2, the
Holders of Notes of not less than a majority of the Outstanding Amount of the
Notes may waive any past Default or Event of Default and its consequences except
a Default (a) in payment of principal of or interest on any of the Notes or (b)
in respect of a covenant or provision hereof which cannot be modified or amended
without the consent of the Holder of each Note. In the case of any such waiver,
the Issuer, the Trustee and the Holders of the Notes shall be restored to their
former positions and rights hereunder, respectively; but no such waiver shall
extend to any subsequent or other Default or impair any right consequent
thereto.
Upon any such waiver, such Default shall cease to exist and be deemed
to have been cured and not to have occurred, and any Event of Default arising
therefrom shall be deemed to have been cured and not to have occurred, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other Default or Event of Default or impair any right consequent thereto.
SECTION 5.13 Undertaking for Costs. All parties to this Indenture
agree, and each Holder of any Note by such Holder's acceptance thereof shall be
deemed to have agreed, that any court may in its discretion require, in any suit
for the enforcement of any right or remedy under this Indenture, or in any suit
against the Trustee for any action taken, suffered or omitted by it as Trustee,
the filing by any party litigant in such suit of an undertaking to pay the costs
of such suit, and that su court may in its discretion assess reasonable costs,
including reasonable attorneys' fees, against any party litigant in such suit,
having due regard to the merits and good faith of the claims or defenses made by
such party litigant; but the provisions of this Section shall not apply to (a)
any suit instituted by the Trustee, (b) any suit instituted by any Noteholder,
or group of Noteholders, in each case holding in the aggregate more than 10% of
the Outstanding Amount of the Notes or (c) any suit instituted by any Noteholder
for the enforcement of the payment of principal of or interest on any Note on or
after the respective due dates expressed in such Note and in this Indenture (or,
in the case of redemption, on or after the Redemption Date).
SECTION 5.14 Waiver of Stay or Extension Laws. The Issuer covenants
(to the extent that it may lawfully do so) that it will not at any time insist
upon, or plead or in any manner whatsoever, claim or take the benefit or
advantage of, any stay or extension law wherever enacted, now or at any time
hereafter in force, that may affect the covenants or the performance of this
Indenture; and the Issuer (to the extent that it may lawfully do so) hereby
expressly waives all benefit or advantage o any such law, and covenants that it
will not hinder, delay or impede the execution of any power herein granted to
the Trustee, but will suffer and permit the execution of every such power as
though no such law had been enacted.
SECTION 5.15 Action on Notes. The Trustee's right to seek and recover
judgment on the Notes or under this Indenture shall not be affected by the
seeking, obtaining or application of any other relief under or with respect to
this Indenture. Neither the lien of this Indenture nor any rights or remedies of
the Trustee or the Noteholders shall be impaired by the recovery of any judgment
by the Trustee against the Issuer or by the levy of any execution under such
judgment upon any portion of Trust Estate or upon any of the assets of the
Issuer.
SECTION 5.16 Performance and Enforcement of Certain Obligations. (a)
Promptly following a written request from the Trustee to do so and at the
Servicer's expense, the Issuer agrees to take all such lawful action as the
Trustee may request to compel or secure the performance and observance by the
Representative, and the Servicer, as applicable, of each of their obligations to
the Issuer under or in connection with the Sale and Servicing Agreement in
accordance with the terms thereof, and to exercise any and all rights, remedies,
powers and privileges lawfully available to the Issuer under or in connection
with the Sale and Servicing Agreement to the extent and in the manner directed
by the Trustee, including the transmission of notices of default on the part of
the Representative or the Servicer thereunder and the institution of legal or
administrative actions or proceedings to compel or secure performance by the
Representative or the Servicer of each of their obligations under the Sale and
Servicing Agreement.
(b) If an Event of Default has occurred and is continuing, the Trustee
may, and, at the direction (which direction shall be in writing or by telephone
(confirmed in writing promptly thereafter)) of the Holders of 66-2/3% of the
Outstanding Amount of the Notes shall, exercise all rights, remedies, powers,
privileges and claims of the Issuer against the Representative or the Servicer
under or in connection with the Sale and Servicing Agreement, including the
right or power to take any action compel or secure performance or observance by
the Representative or the Servicer of each of their obligations to the Issuer
thereunder and to give any consent, request, notice, direction, approval,
extension or waiver under the Sale and Servicing Agreement, and any right of the
Issuer to take such action shall be suspended.
ARTICLE VI
The Trustee
SECTION 6.1 Duties of Trustee. (a) If an Event of Default has occurred
and is continuing, the Trustee shall exercise the rights and powers vested in it
by this Indenture and use the same degree of care and skill in their exercise as
a prudent person would exercise or use under the circumstances in the conduct of
such person's own affairs.
(b) Except during the continuance of an Event of Default:
(i) the Trustee undertakes to perform such duties and only
such duties as are specifically set forth in this Indenture and
no implied covenants or obligations shall be read into this
Indenture against the Trustee; and
(ii) in the absence of bad faith on its part, the Trustee
may conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates
or opinions furnished to the Trustee and conforming to the
requirements of this Indenture; however, the Trustee shall
examine the certificates and opinions to determine whether or not
they conform to the requirements of this Indenture.
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act or its own willful
misconduct, except that:
(i) this paragraph does not limit the effect of paragraph
(b) of this Section;
(ii) the Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer unless it is
proved that the Trustee was negligent in ascertaining the
pertinent facts; and
(iii) the Trustee shall not be liable with respect to any
action it takes or omits to take in good faith in accordance with
a direction received by it pursuant to Section 5.11.
(d) The Trustee shall not be liable for interest on any money received
by it except as the Trustee may agree in writing with the Issuer.
(e) Money held in trust by the Trustee need not be segregated from
other funds except to the extent required by law or the terms of this Indenture
or the Sale and Servicing Agreement.
(f) No provision of this Indenture shall require the Trustee to expend
or risk its own funds or otherwise incur financial liability in the performance
of any of its duties hereunder or in the exercise of any of its rights or
powers, if it shall have reasonable grounds to believe that repayment of such
funds or adequate indemnity against such risk or liability is not reasonably
assured to it.
(g) Every provision of this Indenture relating to the conduct or
affecting the liability of or affording protection to the Trustee shall be
subject to the provisions of this Section and to the provisions of the TIA.
SECTION 6.2 Rights of Trustee. (a) The Trustee may rely on any
document believed by it to be genuine and to have been signed or presented by
the proper person. The Trustee need not investigate any fact or matter stated in
the document.
(b) Before the Trustee acts or refrains from acting, it may require an
Officer's Certificate or an Opinion of Counsel. The Trustee shall not be liable
for any action it takes or omits to take in good faith in reliance on the
Officer's Certificate or Opinion of Counsel.
(c) The Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys or a custodian or nominee, and the Trustee shall not be responsible
for any misconduct or negligence on the part of, or for the supervision of, any
such agent, attorney, custodian or nominee appointed with due care by it
hereunder.
(d) The Trustee shall not be liable for any action it takes or omits
to take in good faith which it believes to be authorized or within its rights or
powers; provided, however, that the Trustee's conduct does not constitute
willful misconduct, negligence or bad faith.
(e) The Trustee may consult with counsel of its selection, and the
advice or opinion of counsel with respect to legal matters relating to this
Indenture and the Notes shall be full and complete authorization and protection
from liability in respect to any action taken, omitted or suffered by it
hereunder in good faith and in accordance with the advice or opinion of such
counsel.
SECTION 6.3 Individual Rights of Trustee. The Trustee in its
individual or any other capacity may become the owner or pledgee of Notes and
may otherwise deal with the Issuer or its Affiliates with the same rights it
would have if it were not Trustee. Any Paying Agent, Note Registrar,
co-registrar or co-paying agent may do the same with like rights. However, the
Trustee must comply with Sections 6.11 and 6.12.
SECTION 6.4 Trustee's Disclaimer. The Trustee shall not be responsible
for and makes no representation as to the validity or adequacy of this Indenture
or the Notes, it shall not be accountable for the Issuer's use of the proceeds
from the Notes, and it shall not be responsible for any statement of the Issuer
in the Indenture or in any document issued in connection with the sale of the
Notes or in the Notes other than the Trustee's certificate of authentication.
SECTION 6.5 Notice of Defaults. If a Default occurs and is continuing
and if it is either actually known or written notice of the existence thereof
has been delivered to a Responsible Officer of the Trustee, the Trustee shall
mail to each Noteholder and the Owner Trustee notice of the Default within 90
days after such knowledge or notice occurs. Except in the case of a Default in
payment of principal of or interest on any Note (including payments pursuant to
the mandatory redemption provisions of such Note), the Trustee may withhold the
notice if and so long as a committee of its Responsible Officers in good faith
determines that withholding the notice is in the interests of Noteholders.
SECTION 6.6 Reports by Trustee to Holders. The Trustee shall deliver
to each Noteholder such information as may be reasonably required to enable such
Holder to prepare its Federal and state income tax returns.
SECTION 6.7 Compensation and Indemnity. The Issuer shall or shall cause
the Servicer to pay to the Trustee from time to time compensation for its
services in accordance with a separate agreement between the Servicer and the
Trustee. The Trustee's compensation shall not be limited by any law on
compensation of a trustee of an express trust. The Issuer shall or shall cause
the Servicer to reimburse the Trustee for all reasonable out-of-pocket expenses
incurred or made by it, including cos of collection, in addition to the
compensation for its services. Such expenses shall include the reasonable
compensation and expenses, disbursements and advances of the Trustee's agents,
counsel, accountants and experts. The Issuer shall or shall cause the Servicer
to indemnify the Trustee and its officers, directors, employees and agents
against any and all loss, liability or expense (including attorneys' fees and
expenses) incurred by it in connection with the acceptance or the administration
of this trust and the performance of its duties hereunder. The Trustee shall
notify the Issuer and the Servicer promptly of any claim for which it may seek
indemnity. Failure by the Trustee to so notify the Issuer and the Servicer shall
not relieve the Issuer of its obligations hereunder or the Servicer of its
obligations under Article XII of the Sale and Servicing Agreement. The Issuer
shall or shall cause the Servicer to defend the claim and the Trustee may have
separate counsel and the Issuer shall or shall cause the Servicer to pay the
fees and expenses of such counsel. Neither the Issuer nor the Servicer need
reimburse any expense or indemnify against any loss, liability or expense
incurred by the Trustee through the Trustee's own willful misconduct, negligence
or bad faith.
The Issuer's payment obligations to the Trustee pursuant to this
Section shall survive the discharge of this Indenture and the resignation or
removal of the Trustee subject to a satisfaction of the Rating Agency Condition.
When the Trustee incurs expenses after the occurrence of a Default specified in
Section 5.1(iv) or (v) with respect to the Issuer, the expenses are intended to
constitute expenses of administration under Title 11 of the United States Code
or any other applicable Federal state bankruptcy, insolvency or similar law.
SECTION 6.8 Replacement of Trustee. The Trustee may resign at any time
by so notifying the Issuer. The Holders of a majority in Outstanding Amount of
the Notes may remove the Trustee by so notifying the Trustee and may appoint a
successor Trustee. The Issuer shall remove the Trustee if:
(i) the Trustee fails to comply with Section 6.11;
(ii) the Trustee is adjudged a bankrupt or insolvent;
(iii) a receiver or other public officer takes charge of the
Trustee or its property; or
(iv) the Trustee otherwise becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason (the Trustee in such event being referred to
herein as the retiring Trustee), the Issuer shall promptly appoint a successor
Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Issuer. Thereupon the resignation
or removal of the retiring Trustee shall become effective, and the successor
Trustee shall have all the rights, powers and duties of the Trustee under this
Indenture subject to satisfaction of the Rating Agency Condition. The successor
Trustee shall mail a notice of its succession to Noteholders. The retiring
Trustee shall promptly transfer all property held by it as Trustee to the
successor Trustee.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Issuer or the
Holders of a majority in Outstanding Amount of the Notes may petition any court
of competent jurisdiction for the appointment of a successor Trustee.
If the Trustee fails to comply with Section 6.11, any Noteholder may
petition any court of competent jurisdiction for the removal of the Trustee and
the appointment of a successor Trustee.
Any resignation or removal of the Trustee and appointment of a
successor Trustee pursuant to any of the provisions of this Section shall not
become effective until acceptance of appointment by the successor Trustee
pursuant to Section 6.8 and payment of all fees and expenses owed to the
outgoing Trustee.
Notwithstanding the replacement of the Trustee pursuant to this Section, the
Issuer's and the Servicer's obligations under Section 6.7 shall continue for the
benefit of the retiring Trustee.
SECTION 6.9 Successor Trustee by Merger. If the Trustee consolidates
with, merges or converts into, or transfers all or substantially all its
corporate trust business or assets to, another corporation or banking
association, the resulting, surviving or transferee corporation without any
further act shall be the successor Trustee. The Trustee shall provide the Rating
Agencies prior written notice of any such transaction.
In case at the time such successor or successors by merger, conversion
or consolidation to the Trustee shall succeed to the trusts created by this
Indenture any of the Notes shall have been authenticated but not delivered, any
such successor to the Trustee may adopt the certificate of authentication of any
predecessor trustee, and deliver such Notes so authenticated; and in case at
that time any of the Notes shall not have been authenticated, any successor to
the Trustee may authenticate su Notes either in the name of any predecessor
hereunder or in the name of the successor to the Trustee; and in all such cases
such certificates shall have the full force which it is anywhere in the Notes or
in this Indenture provided that the certificate of the Trustee shall have.
SECTION 6.10 Appointment of Co-Trustee or Separate Trustee. (a)
Notwithstanding any other provisions of this Indenture, at any time, for the
purpose of meeting any legal requirement of any jurisdiction in which any part
of the Trust may at the time be located, the Trustee shall have the power and
may execute and deliver all instruments to appoint one or more Persons to act as
a co-trustee or co-trustees, or separate trustee or separate trustees, of all or
any part of the Trust, and to vest in such Person or Persons, in such capacity
and for the benefit of the Noteholders, such title to the Trust, or any part
hereof, and, subject to the other provisions of this Section, such powers,
duties, obligations, rights and trusts as the Trustee may consider necessary or
desirable. No co-trustee or separate trustee hereunder shall be required to meet
the terms of eligibility as a successor trustee under Section 6.11 and no notice
to Noteholders of the appointment of any co-trustee or separate trustee shall be
required under Section 6.8 hereof.
(b) Every separate trustee and co-trustee shall, to the extent
permitted by law, be appointed and act subject to the following provisions and
conditions:
(i) all rights, powers, duties and obligations conferred or
imposed upon the Trustee shall be conferred or imposed upon and
exercised or performed by the Trustee and such separate trustee
or co-trustee jointly (it being understood that such separate
trustee or co-trustee is not authorized to act separately without
the Trustee joining in such act), except to the extent that under
any law of any jurisdiction in which any particular act or acts
are to be performed the Trustee shall be incompetent or
unqualified to perform such act or acts, in which event such
rights, powers, duties and obligations (including the holding of
title to the Trust or any portion thereof in any such
jurisdiction) shall be exercised and performed singly by such
separate trustee or co-trustee, but solely at the direction of
the Trustee;
(ii) no trustee hereunder shall be personally liable by
reason of any act or omission of any other trustee hereunder,
including acts or omissions of predecessor or successor trustees;
and
(iii) the Trustee may at any time accept the resignation of
or remove any separate trustee or co-trustee.
(c) Any notice, request or other writing given to the Trustee shall be
deemed to have been given to each of the then separate trustees and co-trustees,
as effectively as if given to each of them. Every instrument appointing any
separate trustee or co-trustee shall refer to this Agreement and the conditions
of this Article VI. Each separate trustee and co-trustee, upon its acceptance of
the trusts conferred, shall be vested with the estates or property specified in
its instrument of appointment, either jointly with the Trustee or separately, as
may be provided therein, subject to all the provisions of this Indenture,
specifically including every provision of this Indenture relating to the conduct
of, affecting the liability of, or affording protection to, the Trustee. Every
such instrument shall be filed with the Trustee.
(d) Any separate trustee or co-trustee may at any time constitute the
Trustee, its agent or attorney-in-fact with full power and authority, to the
extent not prohibited by law, to do any lawful act under or in respect of this
Agreement on its behalf and in its name. If any separate trustee or co-trustee
shall die, become incapable of acting, resign or be removed, all of its estates,
properties, rights, remedies and trusts shall invest in and be exercised by the
Trustee, to the extent permitted by law, without the appointment of a new or
successor trustee.
SECTION 6.11 Eligibility; Disqualification. The Trustee shall at all
times satisfy the requirements of TIA ss. 310(a). The Trustee shall have a
combined capital and surplus of at least $50,000,000 as set forth in its most
recent published annual report of condition and it shall have a long term debt
rating of at least [BBB- by Standard & Poor's Ratings Group, a Division of the
McGraw Hill Companies, Inc. ("S&P")] and [Baa3 by Moody's Investors Services,
Inc. ("Moody's)] [or ______, from another Rating Agency]. The Trustee shall
comply with TIA ss. 310 (b), including the optional provision permitted by the
second sentence of TIA ss. 310(b)(9); provided, however, that there shall be
excluded from the operation of TIA ss. 310(b)(1) any indenture or indentures
under which other securities of the Issuer are outstanding if the requirements
for such exclusion set forth in TIA ss. 310(b)(1) are met.
SECTION 6.12 Preferential Collection of Claims Against Issuer. The
Trustee shall comply with TIA ss.311(a), excluding any creditor relationship
listed in TIA ss.311(b). A Trustee who has resigned or been removed shall be
subject to TIA ss.311(a) to the extent indicated.
ARTICLE VII
Noteholders' Lists and Reports
SECTION 7.1 Issuer To Furnish Trustee Names and Addresses of
Noteholders. The Issuer will furnish or cause to be furnished to the Trustee (a)
not more than five days after the earlier of (i) each Record Date and (ii) three
months after the last Record Date, a list, in such form as the Trustee may
reasonably require, of the names and addresses of the Holders as of such Record
Date, (b) at such other times as the Trustee may request in writing, within 30
days after receipt by the Issuer of such request, a list of similar form and
content as of a date not more than 10 days prior to the time such list is
furnished; provided, however, that so long as the Trustee is the Note Registrar,
no such list shall be required to be furnished.
SECTION 7.2 Preservation of Information; Communications to
Noteholders. (a) The Trustee shall preserve, in as current a form as is
reasonably practicable, the names and addresses of the Holders contained in the
most recent list furnished to the Trustee as provided in Section 7.1 and the
names and addresses of Holders received by the Trustee in its capacity as Note
Registrar. The Trustee may destroy any list furnished to it as provided in such
Section 7.1 upon receipt of a new list so furnished.
(b) Noteholders may communicate pursuant to TIA ss.312(b) with other
Noteholders with respect to their rights under this Indenture or under the
Notes.
(c) The Issuer, the Trustee and the Note Registrar shall have the
protection of TIA ss. 312(c).
SECTION 7.3 Reports by Issuer. (a) The Issuer shall:
(i) file with the Trustee, within 15 days after the Issuer is
required to file the same with the Commission, copies of the
annual reports and of the information, documents and other
reports (or copies of such portions of any of the foregoing
as the Commission may from time to time by rules and
regulations prescribe) which the Issuer may be required to
file with the Commission pursuant to Section 13 or 15(d) of
the Exchange Act;
(ii) file with the Trustee and the Commission in accordance with
rules and regulations prescribed from time to time by the
Commission such additional information, documents and
reports with respect to compliance by the Issuer with the
conditions and covenants of this Indenture as may be
required from time to time by such rules and regulations;
and
(iii) supply to the Trustee (and the Trustee shall transmit by
mail to all Noteholders described in TIA ss. 313(c)) such
summaries of any information, documents and reports required
to be filed by the Issuer pursuant to clauses (i) and (ii)
of this Section 7.3(a) as may be required by rules and
regulations prescribed from time to time by the Commission.
(b) Unless the Issuer otherwise determines, the fiscal year of the
Issuer shall end on December 31 of each year.
SECTION 7.4 Reports by Trustee. If required by TIA ss.313(a), within 60
days after each _________ 1, beginning with _____ 1, ____, the Trustee shall
mail to each Noteholder as required by TIA ss.313(c) a brief report dated as of
such date that complies with TIA ss.313(a). The Trustee also shall comply with
TIA ss.313(b).
A copy of each report at the time of its mailing to Noteholders shall
be filed by the Trustee with the Commission, if required by the Exchange Act,
and each stock exchange, if any, on which the Notes are listed. The Issuer shall
notify the Trustee if and when the Notes are listed on any stock exchange.
ARTICLE VIII
Accounts, Disbursements and Releases
SECTION 8.1 Collection of Money. Except as otherwise expressly
provided herein, the Trustee may demand payment or delivery of, and shall
receive and collect, directly and without intervention or assistance of any
fiscal agent or other intermediary, all money and other property payable to or
receivable by the Trustee pursuant to this Indenture. The Trustee shall apply
all such money received by it as provided in this Indenture. Except as otherwise
expressly provided in this Indenture, if default occurs in the making of any
payment or performance under any agreement or instrument that is part of the
Trust Estate, the Trustee may take such action as may be appropriate to enforce
such payment or performance, including the institution and prosecution of
appropriate proceedings. Any such action shall be without prejudice to any right
to claim a Default or Event of Default under this Indenture and any right to
proceed thereafter as provided in Article V.
SECTION 8.2 Trust Accounts. (a) On or prior to the Closing Date, the
Issuer shall cause the Servicer to establish and maintain, in the name of the
Trustee, for the benefit of the Noteholders and the Certificateholders, the
Trust Accounts as provided in Section 7.01 of the Sale and Servicing Agreement.
(b) On or before each Remittance Date, the Total Distribution Amount
with respect to the preceding Due Period will be deposited in the Principal and
Interest Account as provided in Section 4.03 of the Sale and Servicing
Agreement. On or before each Remittance Date, the Noteholders' Distributable
Amount with respect to the preceding Due Period will be transferred from the
Principal and Interest Account and/or the Reserve Account to the Note
Distribution Account as provided in Sections 7.01 and 7.06 of the Sale and
Servicing Agreement.
(c) On each Remittance Date and Redemption Date, the Trustee shall
distribute all amounts on deposit in the Note Distribution Account to
Noteholders in respect of the Notes to the extent of amounts due and unpaid on
the Notes for principal and interest in the following amounts and in the
following order of priority (except as otherwise provided in Section 5.4(b)):
(i) accrued and unpaid interest on the Notes; provided
that if there are not sufficient funds in the Note
Distribution Account to pay the entire amount of accrued and
unpaid interest then due on the Notes, the amount in the
Note Distribution Account shall be applied to the payment of
such interest on the Notes pro rata on the basis of the
total such interest due on the Notes; and
(ii) to the Holders of the Notes on account of
principal until the Outstanding Amount of the Notes is
reduced to zero.
SECTION 8.3 General Provisions Regarding Accounts. (a) So long as no
Default or Event of Default shall have occurred and be continuing, all or a
portion of the funds in the Trust Accounts shall be invested in Permitted
Instruments and reinvested by the Trustee upon Issuer Order, subject to the
provisions of Section 7.01 of the Sale and Servicing Agreement. All income or
other gain from investments of moneys deposited in the Trust Accounts shall be
deposited (or caused to be deposited) by the Trustee in the Principal and
Interest Account, and any loss resulting from such investments shall be charged
to such account. The Issuer will not direct the Trustee to make any investment
of any funds or to sell any investment held in any of the Trust Accounts unless
the security interest granted and perfected in such account will continue to be
perfected in such investment or the proceeds of such sale, in either case
without any further action by any Person, and, in connection with any direction
to the Trustee to make any such investment or sale, if requested by the Trustee,
the Issuer shall deliver to the Trustee an Opinion of Counsel, acceptable to the
Trustee, to such effect.
(b) [Reserved]
(c) Subject to Section 6.1(c), the Trustee shall not in any way be
held liable by reason of any insufficiency in any of the Trust Accounts
resulting from any loss on any Eligible Investment included therein except for
losses attributable to the Trustee's failure to make payments on such Permitted
Instruments issued by the Trustee, in its commercial capacity as principal
obligor and not as trustee, in accordance with their terms.
(d) If (i) the Issuer shall have failed to give investment directions
for any funds on deposit in the Trust Accounts to the Trustee by 11:00 a.m.
Eastern Time (or such other time as may be agreed by the Issuer and Trustee) on
any Business Day; or (ii) a Default or Event of Default shall have occurred and
be continuing with respect to the Notes but the Notes shall not have been
declared due and payable pursuant to Section 5.2, or, (iii) if such Notes shall
have been declared due and payable following an Event of Default but amounts
collected or receivable from the Trust Estate are being applied in accordance
with Section 5.5 as if there had not been such a declaration; then the Trustee
shall, to the fullest extent practicable, invest and reinvest funds in the Trust
Accounts in one or more Permitted Instruments.
SECTION 8.4 Release of Trust Estate. (a) Subject to Article VI
hereunder, the Trustee may, and when required by the provisions of this
Indenture shall, execute instruments to release property from the lien of this
Indenture, or convey the Trustee's interest in the same, in a manner and under
circumstances that are not inconsistent with the provisions of this Indenture.
No party relying upon an instrument executed by the Trustee as provided in this
Article VIII shall be bound to ascertai the Trustee's authority, inquire into
the satisfaction of any conditions precedent or see to the application of any
moneys.
(b) The Trustee shall, at such time as there are no Notes outstanding
and all sums due the Trustee pursuant to Section 6.7 have been paid, release any
remaining portion of the Trust Estate that secured the Notes from the lien of
this Indenture and release to the Issuer or any other Person entitled thereto
any funds then on deposit in the Trust Accounts. The Trustee shall release
property from the lien of this Indenture pursuant to this Section 8.4(b) only
upon receipt of an Issuer Request accompanied by an Officer's Certificate, an
Opinion of Counsel and (if required by the TIA) Independent Certificates in
accordance with TIA ss.314(c) and 314(d)(1) meeting the applicable requirements
of Section 11.1.
SECTION 8.5 Opinion of Counsel. The Trustee shall receive at least
seven days' notice when requested by the Issuer to take any action pursuant to
Section 8.4(a), accompanied by copies of any instruments involved, and the
Trustee shall also require as a condition to such action, an Opinion of Counsel,
in form and substance satisfactory to the Trustee, stating the legal effect of
any such action, outlining the steps required to complete the same, and
concluding that all conditions precedent the taking of such action have been
complied with and such action will not materially and adversely impair the
security for the Notes or the rights of the Noteholders in contravention of the
provisions of this Indenture; provided, however, that such Opinion of Counsel
shall not be required to express an opinion as to the fair value of the Trust
Estate. Counsel rendering any such opinion may rely, without independent
investigation, on the accuracy and validity of any certificate or other
instrument delivered to the Trustee in connection with any such action.
ARTICLE IX
Supplemental Indentures
SECTION 9.1 Supplemental Indentures without Consent of Noteholders.
(a) Without the consent of the Holders of any Notes but with prior notice to the
Rating Agencies by the Issuer, as evidenced to the Trustee, the Issuer and the
Trustee, when authorized by an Issuer Order, at any time and from time to time,
may enter into one or more indentures supplemental hereto (which shall conform
to the provisions of the Trust Indenture Act as in force at the date of the
execution thereof), in form satisfactory to the Trustee, for any of the
following purposes:
(i) to correct or amplify the description of any property at any
time subject to the lien of this Indenture, or better to assure,
convey and confirm unto the Trustee any property subject or required
to be subjected to the lien of this Indenture, or to subject to the
lien of this Indenture additional property;
(ii) to evidence the succession, in compliance with the
applicable provisions hereof, of another person to the Issuer, and the
assumption by any such successor of the covenants of the Issuer herein
and in the Notes contained;
(iii) to add to the covenants of the Issuer, for the benefit of
the Holders of the Notes, or to surrender any right or power herein
conferred upon the Issuer;
(iv) to convey, transfer, assign, mortgage or pledge any property
to or with the Trustee;
(v) to cure any ambiguity, to correct or supplement any provision
herein or in any supplemental indenture which may be inconsistent with
any other provision herein or in any supplemental indenture or to make
any other provisions with respect to matters or questions arising
under this Indenture or in any supplemental indenture; provided that
such action shall not adversely affect the interests of the Holders of
the Notes;
(vi) to evidence and provide for the acceptance of the
appointment hereunder by a successor trustee with respect to the Notes
and to add to or change any of the provisions of this Indenture as
shall be necessary to facilitate the administration of the trusts
hereunder by more than one trustee, pursuant to the requirements of
Article VI; or
(vii) to modify, eliminate or add to the provisions of this
Indenture to such extent as shall be necessary to effect the
qualification of this Indenture under the TIA or under any similar
federal statute hereafter enacted and to add to this Indenture such
other provisions as may be expressly required by the TIA.
The Trustee is hereby authorized to join in the execution of any such
supplemental indenture and to make any further appropriate agreements and
stipulations that may be therein contained.
(b) The Issuer and the Trustee, when authorized by an Issuer Order,
may, also without the consent of any of the Holders of the Notes but with prior
notice to the Rating Agencies by the Issuer, as evidenced to the Trustee, enter
into an indenture or indentures supplemental hereto for the purpose of adding
any provisions to, or changing in any manner or eliminating any of the
provisions of, this Indenture or of modifying in any manner the rights of the
Holders of the Notes under this Indenture; provided, however, that such action
shall not, as evidenced by an Opinion of Counsel, adversely affect in any
material respect the interests of any Noteholder; provided, further, that any
amendment within the scope of Section 9.2 (i)-(vii) shall be deemed to
materially and adversely affect the interests of the Noteholders, as evidenced
by an Officer's Certificate of the Servicer delivered to the Trustee.
SECTION 9.2 Supplemental Indentures with Consent of Noteholders. The
Issuer and the Trustee, when authorized by an Issuer Order, also may, with prior
notice to the Rating Agencies and with the consent of the Holders of not less
than a majority of the outstanding Amount of the Notes, by Act of such Holders
delivered to the Issuer and the Trustee, enter into an indenture or indentures
supplemental hereto for the purpose of adding any provisions to, or changing in
any manner or eliminating a of the provisions of, this Indenture or of modifying
in any manner the rights of the Holders of the Notes under this Indenture;
provided, however, that no such supplemental indenture shall, without the
consent of the Holder of each Outstanding Note affected thereby:
(i) change the date of payment of any installment of principal of
or interest on any Note, or reduce the principal amount thereof, the
interest rate thereon or the Redemption Price with respect thereto,
change the provision of this Indenture relating to the application of
collections on, or the proceeds of the sale of, the Trust Estate to
payment of principal of or interest on the Notes, or change any place
of payment where, or the coin or currency in which, any Note or the
interest thereon is payable, or impair the right to institute suit for
the enforcement of the provisions of this Indenture requiring the
application of funds available therefor, as provided in Article V, to
the payment of any such amount due on the Notes on or after the
respective due dates thereof (or, in the case of redemption, on or
after the Redemption Date);
(ii) reduce the percentage of the Outstanding Amount of the
Notes, the consent of the Holders of which is required for any such
supplemental indenture, or the consent of the Holders of which is
required for any waiver of compliance with certain provisions of this
Indenture or certain defaults hereunder and their consequences
provided for in this Indenture;
(iii) modify or alter the provisions of the proviso to the
definition of the term "Outstanding";
(iv) reduce the percentage of the Outstanding Amount of the Notes
required to direct the Trustee to direct the Issuer to sell or
liquidate the Trust Estate pursuant to Section 5.4;
(v) modify any provision of this Section except to increase any
percentage specified herein or to provide that certain additional
provisions of this Indenture or the Basic Documents cannot be modified
or waived without the consent of the Holder of each Outstanding Note
affected thereby;
(vi) modify any of the provisions of this Indenture in such
manner as to affect the calculation of the amount of any payment of
interest or principal due on any Note on any Remittance Date
(including the calculation of any of the individual components of such
calculation) or to affect the rights of the Holders of Notes to the
benefit of any provisions for the mandatory redemption of the Notes
contained herein; or
(vii) permit the creation of any lien ranking prior to or on a
parity with the lien of this Indenture with respect to any part of the
Trust Estate or, except as otherwise permitted or contemplated herein
or in the Basic Documents, terminate the lien of this Indenture on any
property at any time subject hereto or deprive the Holder of any Note
of the security provided by the lien of this Indenture.
The Trustee may determine whether or not any Notes would be affected
by any supplemental indenture and any such determination shall be conclusive
upon the Holders of all Notes, whether theretofore or thereafter authenticated
and delivered hereunder. The Trustee shall not be liable for any such
determination made in good faith.
It shall not be necessary for any Act of Noteholders under this
Section to approve the particular form of any proposed supplemental indenture,
but it shall be sufficient if such Act shall approve the substance thereof.
Promptly after the execution by the Issuer and the Trustee of any
supplemental indenture pursuant to this Section, the Trustee shall mail to the
Holders of the Notes to which such amendment or supplemental indenture relates a
notice setting forth in general terms the substance of such supplemental
indenture. Any failure of the Trustee to mail such notice, or any defect
therein, shall not, however, in any way impair or affect the validity of any
such supplemental indenture.
SECTION 9.3 Execution of Supplemental Indentures. In executing, or
permitting the additional trusts created by, any supplemental indenture
permitted by this Article IX or the modifications thereby of the trusts created
by this Indenture, the Trustee shall be entitled to receive, and subject to
Sections 6.1 and 6.2, shall be fully protected in relying upon, an Opinion of
Counsel stating that the execution of such supplemental indenture is authorized
or permitted by this Indenture. The Trustee may, but shall not be obligated to,
enter into any such supplemental indenture that affects the Trustee's own
rights, duties, liabilities or immunities under this Indenture or otherwise. The
Trustee shall provide copies of each such supplemental indenture to each of the
Rating Agencies.
SECTION 9.4 Effect of Supplemental Indenture. Upon the execution of
any supplemental indenture pursuant to the provisions hereof, this Indenture
shall be and be deemed to be modified and amended in accordance therewith with
respect to the Notes affected thereby, and the respective rights, limitations of
rights, obligations, duties, liabilities and immunities under this Indenture of
the Trustee, the Issuer and the Holders of the Notes shall thereafter be
determined, exercised and enforced hereunder subject in all respects to such
modifications and amendments, and all the terms and conditions of any such
supplemental indenture shall be and be deemed to be part of the terms and
conditions of this Indenture for any and all purposes.
SECTION 9.5 Conformity with Trust Indenture Act. Every amendment of
this Indenture and every supplemental indenture executed pursuant to this
Article IX shall conform to the requirements of the Trust Indenture Act as then
in effect so long as this Indenture shall then be qualified under the Trust
Indenture Act.
SECTION 9.6 Reference in Notes to Supplemental Indentures. Notes
authenticated and delivered after the execution of any supplemental indenture
pursuant to this Article IX may, and if required by the Trustee shall, bear a
notation in form approved by the Trustee as to any matter provided for in such
supplemental indenture. If the Issuer or the Trustee shall so determine, new
Notes so modified as to conform, in the opinion of the Trustee and the Issuer,
to any such supplemental indenture m be prepared and executed by the Issuer and
authenticated and delivered by the Trustee in exchange for Outstanding Notes.
ARTICLE X
Redemption of Notes
SECTION 10.1 Redemption. (a) The Notes are subject to redemption in
whole, but not in part, at the direction of the Representative pursuant to
Section 11.01 of the Sale and Servicing Agreement, on any Remittance Date on
which the Representative exercises its option to purchase the Trust Estate
pursuant to said Section 11.01. The purchase price for the Notes shall be equal
to the Redemption Price; provided, however, that the Issuer has available funds
sufficient to pay the Redemption Pri The Servicer shall furnish the Rating
Agencies notice of such redemption. If the Notes are to be redeemed pursuant to
this Section 10.1(a) (i) or (ii), the Servicer shall furnish notice to the
Trustee not later than 25 days prior to the Redemption Date and the Issuer shall
deposit with the Trustee in the Note Distribution Account, on or before the
Redemption Date, the Redemption Price of the Notes to be redeemed whereupon all
such Notes shall be due and payable on the Redemption Date upon the furnishing
of a notice complying with Section 10.2 to each Holder of the Notes.
(b) In the event that the assets of the Trust are sold pursuant to
Section 9.2 of the Trust Agreement, all amounts on deposit in the Note
Distribution Account shall be paid to the Noteholders up to the Outstanding
Amount of the Notes and all accrued and unpaid interest thereon. If amounts are
to be paid to Noteholders pursuant to this Section 10.1(b), the Servicer shall,
to the extent practicable, furnish notice of such event to the Trustee not later
than 25 days prior to the Redemption D whereupon all such amounts shall be
payable on the Redemption Date.
SECTION 10.2 Form of Redemption Notice. (a) Notice of redemption under
Section 10.1(a) shall be given by the Trustee by facsimile or by first-class
mail, postage prepaid, transmitted or mailed not less than five days in the case
of Section 10.1(a)(i) and Section 10.1(a)(ii) prior to the applicable Redemption
Date to each Holder of Notes, as of the close of business on the Record Date
preceding the applicable Redemption Date, at such Holder's address appearing in
the Note Register.
All notices of redemption shall state:
(i) the Redemption Date;
(ii) the Redemption Price;
(iii) that the Record Date otherwise applicable to such
Redemption Date is not applicable and that payments shall be made only
upon presentation and surrender of such Notes and the place where such
Notes are to be surrendered for payment of the Redemption Price (which
shall be the office or agency of the Issuer to be maintained as
provided in Section 3.2); and
(iv) that interest on the Notes shall cease to accrue on the
Redemption Date.
Notice of redemption of the Notes shall be given by the Trustee in the
name and at the expense of the Issuer. Failure to give notice of redemption, or
any defect therein, to any Holder of any Note shall not impair or affect the
validity of the redemption of any other Note.
(b) Prior notice of redemption under Sections 10.1(b) is not required
to be given to Noteholders.
SECTION 10.3 Notes Payable on Redemption Date. The Notes to be
redeemed shall, following notice of redemption as required by Section 10.2 (in
the case of redemption pursuant to Section 10.1(a)), on the Redemption Date
become due and payable at the Redemption Price and (unless the Issuer shall
default in the payment of the Redemption Price) no interest shall accrue on the
Redemption Price for any period after the date to which accrued interest is
calculated for purposes of calculating the Redemption Price.
ARTICLE XI
Miscellaneous
SECTION 11.1 Compliance Certificates and Opinions, etc.. (a) Upon any
application or request by the Issuer to the Trustee to take any action under any
provision of this Indenture, the Issuer shall furnish to the Trustee (i) an
Officer's Certificate stating that all conditions precedent, if any, provided
for in this Indenture relating to the proposed action have been complied with,
(ii) an Opinion of Counsel stating that in the opinion of such counsel all such
conditions precedent, if any have been complied with and (iii) (if required by
the TIA) an Independent Certificate from a firm of certified public accountants
meeting the applicable requirements of this Section, except that, in the case of
any such application or request as to which the furnishing of such documents is
specifically required by any provision of this Indenture, no additional
certificate or opinion need be furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(i) a statement that each signatory of such certificate or
opinion has read or has caused to be read such covenant or condition
and the definitions herein relating thereto;
(ii) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(iii) a statement that, in the opinion of each such signatory,
such signatory has made such examination or investigation as is
necessary to enable such signatory to express an informed opinion as
to whether or not such covenant or condition has been complied with;
and
(iv) a statement as to whether, in the opinion of each such
signatory such condition or covenant has been complied with.
(b) (i) Prior to the deposit of any Collateral or other property or
securities with the Trustee that is to be made the basis for the release of any
property or securities subject to the lien of this Indenture, the Issuer shall,
in addition to any obligation imposed in Section 11.1(a) or elsewhere in this
Indenture, furnish to the Trustee an Officer's Certificate certifying or stating
the opinion of each person signing such certificate as to the fair value (within
90 days of such deposit) to the Issuer of the Collateral or other property or
securities to be so deposited.
(ii) Whenever the Issuer is required to furnish to the Trustee an
Officer's Certificate certifying or stating the opinion of any signer
thereof as to the matters described in clause (i) above, the Issuer
shall also deliver to the Trustee an Independent Certificate as to the
same matters, if the fair value to the Issuer of the securities to be
so deposited and of all other such securities made the basis of any
such withdrawal or release since the commencement of the then-current
fiscal year of the Issuer, as set forth in the certificates delivered
pursuant to clause (i) above and this clause (ii), is 10% or more of
the Outstanding Amount of the Notes, but such a certificate need not
be furnished with respect to any securities so deposited, if the fair
value thereof to the Issuer as set forth in the related Officer's
Certificate is less than $25,000 or less than one percent of the
Outstanding Amount of the Notes.
(iii) Other than with respect to the release of any Deleted
Mortgage Loans or Liquidated Mortgage Loans, whenever any property or
securities are to be released from the lien of this Indenture, the
Issuer shall also furnish to the Trustee an Officer's Certificate
certifying or stating the opinion of each person signing such
certificate as to the fair value (within 90 days of such release) of
the property or securities proposed to be released and stating that in
the opinion of such person the proposed release will not impair the
security under this Indenture in contravention of the provisions
hereof.
(iv) Whenever the Issuer is required to furnish to the Trustee an
Officer's Certificate certifying or stating the opinion of any signer
thereof as to the matters described in clause (iii) above, the Issuer
shall also furnish to the Trustee an Independent Certificate as to the
same matters if the fair value of the property or securities and of
all other property other than Deleted Mortgage Loans and Liquidated
Mortgage Loans, or securities released from the lien of this Indenture
since the commencement of the then current calendar year, as set forth
in the certificates required by clause (iii) above and this clause
(iv), equals 10% or more of the Outstanding Amount of the Notes, but
such certificate need not be furnished in the case of any release of
property or securities if the fair value thereof as set forth in the
related Officer's Certificate is less than $25,000 or less than one
percent of the then Outstanding Amount of the Notes.
(v) Notwithstanding Section 2.9 or any other provision of this
Section, the Issuer may (A) collect, liquidate, sell or otherwise
dispose of Mortgage Loans as and to the extent permitted or required
by the Basic Documents and (B) make cash payments out of the Trust
Accounts as and to the extent permitted or required by the Basic
Documents.
SECTION 11.2 Form of Documents Delivered to Trustee. In any case where
several matters are required to be certified by, or covered by an opinion of,
any specified Person, it is not necessary that all such matters be certified by,
or covered by the opinion of, only one such Person, or that they be so certified
or covered by only one document, but one such Person may certify or give an
opinion with respect to some matters and one or more other such Persons as to
other matters, and any such Person may certify or give an opinion as to such
matters in one or several documents.
Any certificate or opinion of an Authorized Officer of the Issuer may
be based, insofar as it relates to legal matters, upon a certificate or opinion
of, or representations by, counsel, unless such officer knows, or in the
exercise of reasonable care should know, that the certificate or opinion or
representations with respect to the matters upon which his or her certificate or
opinion is based are erroneous. Any such certificate of an Authorized Officer or
Opinion of Counsel may be based, insofar as it relates to factual matters, upon
a certificate or opinion of, or representations by, an officer or officers of
the Servicer, the Representative or the Issuer, stating that the information
with respect to such factual matters is in the possession of the Servicer, the
Representative or the Issuer, unless such counsel knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to such matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
Whenever in this Indenture, in connection with any application or
certificate or report to the Trustee, it is provided that the Issuer shall
deliver any document as a condition of the granting of such application, or as
evidence of the Issuer's compliance with any term hereof, it is intended that
the truth and accuracy, at the time of the granting of such application or at
the effective date of such certificate or report (as the case may be), of the
facts and opinions stated in such documen shall in such case be conditions
precedent to the right of the Issuer to have such application granted or to the
sufficiency of such certificate or report. The foregoing shall not, however, be
construed to affect the Trustee's right to rely upon the truth and accuracy of
any statement or opinion contained in any such document as provided in Article
VI.
SECTION 11.3 Acts of Noteholders. (a) Any request, demand,
authorization, direction, notice, consent, waiver or other action provided by
this Indenture to be given or taken by Noteholders may be embodied in and
evidenced by one or more instruments of substantially similar tenor signed by
such Noteholders in person or by agents duly appointed in writing; and except as
herein otherwise expressly provided such action shall become effective when such
instrument or instruments are delivered t the Trustee, and, where it is hereby
expressly required, to the Issuer. Such instrument or instruments (and the
action embodied therein and evidenced thereby) are herein sometimes referred to
as the "Act" of the Noteholders signing such instrument or instruments. Proof of
execution of any such instrument or of a writing appointing any such agent shall
be sufficient for any purpose of this Indenture and (subject to Section 6.1)
conclusive in favor of the Trustee and the Issuer, if made in the manner
provided in this Section.
(b) The fact and date of the execution by any person of any such
instrument or writing may be proved in any customary manner of the Trustee.
(c) The ownership of Notes shall be proved by the Note Register.
(d) Any request, demand, authorization, direction, notice, consent,
waiver or other action by the Holder of any Notes shall bind the Holder of every
Note issued upon the registration thereof or in exchange therefor or in lieu
thereof, in respect of anything done, omitted or suffered to be done by the
Trustee or the Issuer in reliance thereon, whether or not notation of such
action is made upon such Note.
SECTION 11.4 Notices, etc., to Trustee, Issuer and Rating Agencies.
Any request, demand, authorization, direction, notice, consent, waiver or Act of
Noteholders or other documents provided or permitted by this Indenture to be
made upon, given or furnished to or filed with:
(a) The Trustee by any Noteholder or by the Issuer shall be sufficient
for every purpose hereunder if personally delivered, delivered by overnight
courier or mailed certified mail, return receipt requested and shall be deemed
to have been duly given upon receipt to the Trustee at its Corporate Trust
Office, or
(b) The Issuer by the Trustee or by any Noteholder shall be in writing
and sufficient for every purpose hereunder if personally delivered, delivered by
overnight courier or mailed certified mail, return receipt requested and shall
be deemed to have been duly given upon receipt to the Issuer addressed to: The
Money Store Trust 1997 -_, in care of the Owner Trustee, Attention: Corporate
Trust Administration at the address of the Owner Trustee's Corporate Trust
Office set forth in the Trust Agreement or at any other address previously
furnished in writing to the Trustee by Issuer. The Issuer shall promptly
transmit any notice received by it from the Noteholders to the Trustee.
Notices required to be given to the Rating Agencies by the Issuer, the
Trustee or the Owner Trustee shall be in writing, personally delivered,
delivered by overnight courier or mailed certified mail, return receipt
requested to (i) in the case of [Moody's, at the following address: Moody's
Investors Service, Inc., 99 Church Street, New York, New York 10004, Attention:
ABS Monitoring Department ]and (ii) in the case of [S&P, at the following
address: Standard & Poor's Ratings Group, 26 Broadway (15th Floor), New York,
New York 10004, Attention of Asset Backed Surveillance Department] [ or other
Rating Agency address]; or as to each of the foregoing, at such other address as
shall be designated by written notice to the other parties.
SECTION 11.5 Notices to Noteholders; Waiver. Where this Indenture
provides for notice to Noteholders of any event, such notice shall be
sufficiently given (unless otherwise herein expressly provided) if in writing
and mailed, first-class, postage prepaid to each Noteholder affected by such
event, at his address as it appears on the Note Register, not later than the
latest date, and not earlier than the earliest date, prescribed for the giving
of such notice. In any case where notice to Noteholders is given by mail,
neither the failure to mail such notice nor any defect in any notice so mailed
to any particular Noteholder shall affect the sufficiency of such notice with
respect to other Noteholders, and any notice that is mailed in the manner here
in provided shall conclusively be presumed to have been duly given.
Where this Indenture provides for notice in any manner, such notice
may be waived in writing by any Person entitled to receive such notice, either
before or after the event, and such waiver shall be the equivalent of such
notice. Waivers of notice by Noteholders shall be filed with the Trustee but
such filing shall not be a condition precedent to the validity of any action
taken in reliance upon such a waiver.
In case, by reason of the suspension of regular mail service as a
result of a strike, work stoppage or similar activity, it shall be impractical
to mail notice of any event to Noteholders when such notice is required to be
given pursuant to any provision of this Indenture, then any manner of giving
such notice as shall be satisfactory to the Trustee shall be deemed to be a
sufficient giving of such notice.
Where this Indenture provides for notice to the Rating Agencies,
failure to give such notice shall not affect any other rights or obligations
created hereunder, and shall not under any circumstance constitute a Default or
Event of Default.
SECTION 11.6 Alternate Payment and Notice Provisions. Notwithstanding
any provision of this Indenture or any of the Notes to the contrary, the Issuer
may enter into any agreement with any Holder of a Note providing for a method of
payment, or notice by the Trustee or any Paying Agent to such Holder, that is
different from the methods provided for in this Indenture for such payments or
notices, provided that such methods are reasonable and consented to by the
Trustee (which consent shall n be unreasonably withheld). The Issuer will
furnish to the Trustee a copy of each such agreement and the Trustee will cause
payments to be made and notices to be given in accordance with such agreements.
SECTION 11.7 Conflict with Trust Indenture Act. If any provision
hereof limits, qualifies or conflicts with another provision hereof that is
required to be included in this indenture by any of the provisions of the Trust
Indenture Act, such required provision shall control.
The provisions of TIA ss. 310 through 317 that impose duties on any
person (including the provisions automatically deemed included herein unless
expressly excluded by this Indenture) are a part of and govern this Indenture,
whether or not physically contained herein.
SECTION 11.8 Effect of Headings and Table of Contents. The Article and
Section headings herein and the Table of Contents are for convenience only and
shall not affect the construction hereof.
SECTION 11.9 Successors and Assigns. All covenants and agreements in
this Indenture and the Notes by the Issuer shall bind its successors and
assigns, whether so expressed or not. All agreements of the Trustee in this
Indenture shall bind its successors.
SECTION 11.10 Separability. In case any provision in this Indenture or
in the Notes shall be invalid, illegal or unenforceable, the validity, legality,
and enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.
SECTION 11.11 Benefits of Indenture. Nothing in this Indenture or in
the Notes, express or implied, shall give to any Person, other than the parties
hereto and their successors hereunder, and the Noteholders, and any other party
secured hereunder, and any other person with an Ownership interest in any part
of the Trust Estate, any benefit or any legal or equitable right, remedy or
claim under this Indenture.
SECTION 11.12 Legal Holidays. In any case where the date on which any
payment is due shall not be a Business Day, then (notwithstanding any other
provision of the Notes or this Indenture) payment need not be made on such date,
but may be made on the next succeeding Business Day with the same force and
effect as if made on the date an which nominally due, and no interest shall
accrue for the period from and after any such nominal date.
SECTION 11.13 GOVERNING LAW. THIS INDENTURE SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
SECTION 11.14 Counterparts. This Indenture may be executed in any
number of counterparts, each of which so executed shall be deemed to be an
original, but all such counterparts shall together constitute but one and the
same instrument.
SECTION 11.15 Recording of Indenture. If this Indenture is subject to
recording in any appropriate public recording offices, such recording is to be
effected by the Issuer and at its expense accompanied by an Opinion of Counsel
(which may be counsel to the Trustee or any other counsel reasonably acceptable
to the Trustee) to the effect that such recording is necessary either for the
protection of the Noteholders or any other person secured hereunder or for the
enforcement of any right or remedy granted to the Trustee under this Indenture.
SECTION 11.16 Trust Obligation. No recourse may be taken, directly or
indirectly, with respect to the obligations of the Issuer, the Representative,
the Servicer, the holder of the GP Interest, the Owner Trustee or the Trustee on
the Notes or under this Indenture or any certificate or other writing delivered
in connection herewith or therewith, against (i) the Representative, the
Servicer, the holder of the GP Interest, the Trustee or the Owner Trustee in its
individual capacity, (ii) any owner of a beneficial interest in the Issuer or
(iii) any partner, owner, beneficiary, agent, officer, director, employee or
agent of the Representative, the Servicer, the holder of the GP Interest, the
Trustee or the Owner Trustee in its individual capacity, any holder of a
beneficial interest in the Issuer, the Representative, the Servicer, the holder
of the GP Interest, the Owner Trustee or the Trustee or of any successor or
assign of the Representative, the Servicer, the holder of the GP Interest, the
Trustee or the Owner Trustee in its individual capacity, except as any such
Person may have expressly agreed (it being understood that the Trustee and the
Owner Trustee have no such obligations in their individual capacity) and except
that any such partner, owner or beneficiary shall be fully liable, to the extent
provided by applicable law, for any unpaid consideration for stock, unpaid
capital contribution or failure to pay any installment or call owing to such
entity. For all purposes of this Indenture, in the performance of any duties or
obligations of the Issuer hereunder, the Owner Trustee shall be subject to, and
entitled to the benefits of, the terms and provisions of Article VI, VII and
VIII of the Trust Agreement.
SECTION 11.17 No Petition. The Trustee, by entering into this
Indenture, and each Noteholder, by accepting a Note, hereby covenant and agree
that they will not at any time institute against the Representative, the holder
of the GP Interest or the Trust, or join in any institution against the
Representative, the holder of the GP Interest or the Trust of, any bankruptcy,
reorganization, arrangement, insolvency or liquidation proceedings, or other
proceedings under any United States Federal state bankruptcy or similar law in
connection with any obligations relating to the Notes, this Indenture or any of
the Basic Documents.
SECTION 11.18 Inspection. The Issuer agrees that, on reasonable prior
notice, it will permit any representative of the Trustee, during the Issuer's
normal business hours, to examine all the books of account, records, reports,
and other papers of the Issuer, to make copies and extracts therefrom, to cause
such books to be audited by Independent certified public accountants, and to
discuss the Issuer's affairs, finances and accounts with the Issuer's officers,
employees, and independent certified public accountants, all at such reasonable
times and as often as may be reasonably requested. The Trustee shall and shall
cause its representatives to hold in confidence all such information except to
the extent disclosure may be required by law (and all reasonable applications
for confidential treatment are unavailing) and except to the extent that the
Trustee may reasonably determine that such disclosure is consistent with its
Obligations hereunder.
[THIS SPACE LEFT INTENTIONALLY BLANK]
IN WITNESS WHEREOF, the Issuer and the Trustee have caused this
Indenture to be duly executed by their respective officers, thereunto duly
authorized, all as of the day and year first above written.
THE MONEY STORE TRUST 1997 -_,
By: [OWNER TRUSTEE], not in its individual capacity but
solely as Owner Trustee,
By:_____________________________
Name:
Title:
[THE BANK OF NEW YORK]
not in its individual capacity
but solely as Trustee,
By:_____________________________
Name:
Title:
<PAGE>
[Form of Note] EXHIBIT D
REGISTERED $
No. ___
SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP NO. ______________
[UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY NOTE ISSUED IS
REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO
SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY
TRANSFER, PLEDGE OR OTHER US HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.]
THE PRINCIPAL OF THIS NOTE IS PAYABLE IN INSTALLMENTS AS SET FORTH
HEREIN. ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS NOTE AT ANY TIME
MAY BE LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF.
<PAGE>
THE MONEY STORE TRUST 1997 -_
__% ASSET BACKED NOTES
The Money Store Trust 1997 -_, a business trust organized and existing
under the laws of the State of Delaware (herein referred to as the "Issuer"),
for value received, hereby promises to pay to CEDE & CO., or registered assigns,
the principal sum of [_____________] DOLLARS payable on each Remittance Date in
an amount equal to the result obtained by multiplying (i) a fraction the
numerator of which is $[INSERT INITIAL PRINCIPAL AMOUNT OF NOTE) and the
denominator of which is $___________ by (ii) the aggregate amount, if any,
payable from the Note Distribution Account in respect of principal on the Notes
pursuant to Section 3.1 of the Indenture; provided, however, that the entire
unpaid principal amount of this Note shall be due and payable on the earlier of
the __________ Remittance Date (the "Note Final Scheduled Remittance Date") and
the Redemption Date, if any, pursuant to Section 10.1(a) (i) or (ii) or Section
10.1(b) of the Indenture. The Issuer will pay interest on this Note at the rate
per annum shown above on each Remittance Date commencing in ___________ until
the principal of this Note is paid or made available for payment, on the
principal amount of this Note outstanding on the preceding Remittance Date
(after giving effect to all payments of principal made on the preceding
Remittance Date). Interest on this Note will accrue for each Remittance Date
from the most recent Remittance Date on which interest has been paid to but
excluding such Remittance Date or, if no interest has yet been paid, from
_________ __, 199_-_. Interest will be computed on the basis of a 360-day year
of twelve 30-day months. Such principal of and interest on this Note shall be
paid in the manner specified on the reverse hereof.
The principal of and interest on this Note are payable in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts. All payments made by the Issuer
with respect to this Note shall be applied first to interest due and payable on
this Note as provided above and then to the unpaid principal of this Note.
Reference is made to the further provisions of this Note set forth on
the reverse hereof, which shall have the same effect as though fully set forth
on the face of this Note.
Unless the certificate of authentication hereon has been executed by
the Trustee whose name appears below by manual signature, this Note shall not be
entitled to any benefit under the Indenture referred to on the reverse hereof,
or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Issuer has caused this instrument to be
signed, manually or in facsimile, by its Authorized Officer as of the date set
forth below.
Date: THE MONEY STORE TRUST 1997 -_,
By: [OWNER TRUSTEE], not in its individual capacity but
solely as Owner Trustee under the Trust Agreement,
By:_______________________
Authorized Signatory
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the __% Asset Backed Notes of The Money Store Trust
1997 -__ designated above and referred to in the within-mentioned Indenture.
Date: [THE BANK OF NEW YORK],
not in its individual capacity
but solely as Trustee,
By: _________________________
Authorized Signatory
<PAGE>
[REVERSE OF NOTE]
This Note is one of a duly authorized issue of Notes of the Issuer,
designated as its __% Asset Backed Notes (herein called the "Notes"), all issued
under an Indenture dated as of _________ __, 199_-_ (such indenture, as
supplemented or amended, is herein called the "Indenture"), between the Issuer
and [The Bank of New York], as trustee (the "Trustee", which term includes any
successor Trustee under the Indenture), to which Indenture and all indentures
supplemental thereto reference is here made for a statement of the respective
rights and obligations thereunder of the Issuer, the Trustee and the Holders of
the Notes. The Notes are subject to all terms of the Indenture. All terms used
in this Note that are defined in the Indenture, as supplemented or amended,
shall have the meanings assigned to them in or pursuant to the Indenture, as so
supplemented or amended.
The Notes are and will be equally and ratably secured by the
collateral pledged as security therefor as provided in the Indenture.
Principal of the Notes will be payable on each Remittance Date in an
amount described on the face hereof. "Remittance Date" means the fifteenth day
of each month, or, if any such date is not a Business Day, the next succeeding
Business Day, commencing ____________.
As described above, the entire unpaid principal amount of this Note
shall be due and payable on the earlier of the Note Final Scheduled Remittance
Date and the Redemption Date, if any, pursuant to Section 10.1(a) (i) or (ii) or
Section 10.1(b) of the Indenture. Notwithstanding the foregoing, the entire
unpaid principal amount of the Notes shall be due and payable on the date on
which an Event of Default shall have occurred and be continuing and the Trustee
or the Holders of the Notes representing not less than a majority of the
Outstanding Amount of the Notes have declared the Notes to be immediately due
and payable in the manner provided in Section 5.2 of the Indenture. All
principal payments on the Notes shall be made pro rata to the Noteholders
entitled thereto.
Payments of interest on this Note due and payable on each Remittance
Date, together with the installment of principal, if any, to the extent not in
full payment of this Note, shall be made by check mailed to the Person whose
name appears as the Holder of this Note (or one or more Predecessor Notes) on
the Note Register as of the close of business on each Record Date, except that
with respect to Notes registered on the Record Date in the name of the nominee
of the Clearing Agency (initially, such nominee to be Cede & Co.), payments will
be made by wire transfer in immediately available funds to the account
designated by such nominee. Such checks shall be mailed to the Person entitled
thereto at the address of such Person as it appears on the Note Register as of
the applicable Record Date without requiring that this Note be submitted for
notation of payment. Any reduction in the principal amount of this Note (or any
one or more Predecessor Notes) effected by any payments made on any Remittance
Date shall be binding upon all future Holders of this Note and of any Note
issued upon the registration of transfer hereof or in exchange hereof or in lieu
hereof, whether or not noted hereon. If funds are expected to be available, as
provided in the Indenture, for payment in full of the then remaining unpaid
principal amount of this Note on a Remittance Date, then the Trustee, in the
name of and on behalf of the Issuer, will notify the Person who was the Holder
hereof as of the Record Date preceding such Remittance Date by notice mailed
prior to such Remittance Date and the amount then due and payable shall be
payable only upon presentation and surrender of this Note at the Trustee's
principal Corporate Trust Office or at the office of the Trustee's agent
appointed for such purposes located in the City of New York.
The Issuer shall pay interest on overdue installments of interest at
the Interest Rate to the extent lawful.
As provided in the Indenture, the Notes may be redeemed in whole, but
not in part, (i) at the option of the Representative, on any Remittance Date on
or after the date on which the Pool Balance is less than ten percent of the
initial Pool Balance or (ii) if the Representative has not exercised its rights
in clause (i) within ten days following a Remittance Date as of which the Pool
Balance is 5% or less of the initial Pool Balance, an auction sale shall be
conducted (as described in the Sal and Servicing Agreement).
As provided in the Indenture and subject to certain limitations set
forth therein, the transfer of this Note may be registered on the Note Register
upon surrender of this Note for registration of transfer at the office or agency
designated by the Issuer pursuant to the Indenture, (i) duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to the
Trustee duly executed by, the Holder hereof or his attorney duly authorized in
writing, with such signature guaranteed by an "eligible guarantor institution"
meeting the requirements of the Note Registrar which requirements include
membership or participation in Securities Transfer Agents Medallion Program
("Stamp") or such other "signature guarantee program" as may be determined by
the Note Registrar in addition to, or in substitution for, Stamp, all in
accordance with the Exchange Act, and (ii) accompanied by such other documents
as the Trustee may require, and thereupon one or more new Notes of authorized
denominations and in the same aggregate principal amount will be issued to the
designated transferee or transferees. No service charge will be charged for any
registration of transfer or exchange of this Note, but the transferor may be
required to pay a sum sufficient to cover any tax or other governmental charge
that may be imposed in connection with any such registration of transfer or
exchange.
Each Noteholder or Note Owner, by acceptance of a Note or, in the case
of a Note Owner, a beneficial interest in a Note covenants and agrees that no
recourse may be taken, directly or indirectly, with respect to the obligations
of the Issuer, the Owner Trustee or the Trustee on the Notes or under the
Indenture or any certificate or other writing delivered in connection therewith,
against (i) the Representative, the Servicer, the holder of the GP Interest, the
Trustee or the Owner Trustee in its individual capacity, (ii) any owner of a
beneficial interest in the Issuer or (iii) any partner, owner, beneficiary,
agent, officer, director or employee of the Representative, the Servicer, the
holder of the GP Interest, the Trustee or the Owner Trustee in its individual
capacity, any holder of a beneficial interest in the Issuer, the Representative,
the Servicer, the holder of the GP Interest, the Owner Trustee or the Trustee or
of any successor or assign of the Representative, the Servicer, the holder of
the GP Interest, the Trustee or the Owner Trustee in its individual capacity,
except as any such Person may have expressly agreed (it being understood that
the Trustee and the Owner Trustee have no such obligations in their individual
capacity) and except that any such partner, owner or beneficiary shall be fully
liable, to the extent provided by applicable law, for any unpaid consideration
for stock, unpaid capital contribution or failure to pay any installment or call
owing to such entity.
Each Noteholder or Note Owner, by acceptance of a Note or, in the case
of a Note Owner, a beneficial interest in a Note covenants and agrees that by
accepting the benefits of the Indenture that such Noteholder will not at any
time institute against the Representative, the holder of the GP Interest or the
Issuer, or join in any institution against the Representative, the holder of the
GP Interest or the Issuer of, any bankruptcy, reorganization, arrangement,
insolvency or liquidation proceedings, or other proceedings, under any United
States Federal or state bankruptcy or similar law in connection with any
obligations relating to the Notes, the Indenture or the Basic Documents.
Prior to the due presentment for registration of transfer of this
Note, the Issuer, the Trustee and any agent of the Issuer or the Trustee may
treat the Person in whose name this Note (as of the day of determination or as
of such other date as may be specified in the Indenture) is registered as the
owner hereof for all purposes, whether or not this Note be overdue, and neither
the Issuer, the Trustee nor any such agent shall be affected by notice to the
contrary.
The Indenture permits, with certain exceptions as therein provided,
the amendment thereof and the modification of the rights and obligations of the
Issuer and the rights of the Holders of the Notes under the Indenture at any
time by the Issuer with the consent of the Holders of Notes representing a
majority of the Outstanding Amount of all Notes at the time Outstanding. The
Indenture also contains provisions permitting the Holders of Notes representing
specified percentages of the Outstand Amount of the Notes, on behalf of the
Holders of all the Notes, to waive compliance by the Issuer with certain
provisions of the Indenture and certain past defaults under the Indenture and
their consequences. Any such consent or waiver by the Holder of this Note (or
any one of more Predecessor Notes) shall be conclusive and binding upon such
Holder and upon all future Holders of this Note and of any Note issued upon the
registration of transfer hereof or in exchange hereof or in lieu hereof whether
or not notation of such consent or waiver is made upon this Note. The Indenture
also permits the Trustee to amend or waive certain terms and conditions set
forth in the Indenture without the consent of Holders of the Notes issued
thereunder.
The term "Issuer" as used in this Note includes any successor to the
Issuer under the Indenture.
The Issuer is permitted by the Indenture, under certain circumstances,
to merge or consolidate, subject to the rights of the Trustee and the Holders of
Notes under the Indenture.
The Notes are issuable only in registered form in denominations as
provided in the Indenture, subject to certain limitations therein set forth.
This Note and the Indenture shall be construed in accordance with the
laws of the State of New York, without reference to its conflict of law
provisions, and the obligations, rights and remedies of the parties hereunder
and thereunder shall be determined in accordance with such laws.
No reference herein to the Indenture and no provision of this Note or
of the Indenture shall alter or impair the obligation of the Issuer, which is
absolute and unconditional, to pay the principal of and interest on this Note at
the times, place, and rate, and in the coin or currency herein prescribed.
Anything herein to the contrary notwithstanding, except as expressly
provided in the Indenture or the Basic Documents, neither [Owner Trustee] in its
individual capacity, [The Bank of New York] in its individual capacity, any
owner of a beneficial interest in the Issuer, nor any of their respective
partners, beneficiaries, agents, officers, directors, employees or successors or
assigns shall be personally liable for, nor shall recourse be had to any of them
for, the payment of principal of interest on, or performance of, or omission to
perform, any of the covenants, obligations or indemnifications contained in this
Note or the Indenture, it being expressly understood that said covenants,
obligations and indemnifications have been made by the Owner Trustee for the
sole purposes of binding the interests of the Owner Trustee in the assets of the
Issuer. The Holder of this Note by the acceptance hereof agrees that except as
expressly provided in the Indenture or the Basic Documents, in the case of an
Event of Default under the Indenture, the Holder shall have no claim against any
of the foregoing for any deficiency, loss or claim therefrom; provided, however,
that nothing contained herein shall be taken to prevent recourse to, and
enforcement against, the assets of the Issuer for any and all liabilities,
obligations and undertakings contained in the Indenture or in this Note.
<PAGE>
ASSIGNMENT
Social Security or taxpayer I.D. or other identifying number of assignee
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto ________________________________
(name and address of assignee)
the within Note and all rights thereunder, and hereby irrevocably constitutes
and appoints _____________, attorney, to transfer said Note on the books kept
for registration thereof, with full power of substitution in the premises.
Dated: ___________ _______________________3 Signature Guaranteed:
- ------------------
3 Note: The signature to this assignment must correspond with the name of the
registered owner as it appears on the fact of the within Note in every
particular, without alteration, enlargement or any change whatsoever.
Exhibit 4.4
THE MONEY STORE TRUST 199_-_
FORM TRUST AGREEMENT
between
THE MONEY STORE INC.,
as Representative
and
-----------------------
Owner Trustee
Dated as of ______ __, 1997
<PAGE>
TABLE OF CONTENTS PAGE
ARTICLE I - DEFINITIONS
SECTION 1.1. Capitalized Terms.............................................2
SECTION 1.2 Other Definitional Provisions.................................5
ARTICLE II - ORGANIZATION
SECTION 2.1. Name..........................................................6
SECTION 2.2. Office........................................................6
SECTION 2.3. Purposes and Powers...........................................6
SECTION 2.4. Appointment of Owner Trustee..................................7
SECTION 2.5. Initial Capital Contribution of Trust Estate..................7
SECTION 2.6. Declaration of Trust..........................................7
SECTION 2.7. Transfer of Interest to the Representative;
Liability of the Holder of the GP Interest.........7
SECTION 2.8. Title to Trust Property.......................................8
SECTION 2.9. Situs of Trust................................................8
SECTION 2.10 [Reserved]....................................................8
SECTION 2.11 Representations and Warranties of the
Representative......................................8
SECTION 2.12. Federal Income Tax Allocations................................9
ARTICLE III - TRUST CERTIFICATES AND TRANSFER OF INTERESTS
SECTION 3.1. Initial Ownership.............................................10
SECTION 3.2. The Trust Certificates........................................10
SECTION 3.3. Authentication of Trust Certificates.........................10
SECTION 3.4. Registration of Transfer and Exchange of
Trust Certificates.................................11
SECTION 3.5. Mutilated, Destroyed, Lost or Stolen Trust
Certificates.......................................11
SECTION 3.6. Persons Deemed Certificateholders............................12
SECTION 3.7. Access to List of Certificateholders' Names
and Addresses......................................12
SECTION 3.8. Maintenance of Office or Agency..............................12
SECTION 3.9. Appointment of Paying Agent..................................13
SECTION 3.10. [Reserved]...................................................13
SECTION 3.11. [Reserved]...................................................13
SECTION 3.12. Disposition by the Holder of the GP Interest.................13
SECTION 3.13. [Reserved]...................................................14
SECTION 3.14. Book-Entry Trust Certificates................................14
SECTION 3.15. Notices to Clearing Agency...................................15
SECTION 3.16. Definitive Trust Certificates................................15
SECTION 3.17. Trust Certificate Transfer Restrictions......................15
ARTICLE IV - ACTIONS BY OWNER TRUSTEE
SECTION 4.1. Prior Notice to Owners with Respect to
Certain Matters....................................16
SECTION 4.2. Action by Certificateholders with Respect to
Certain Matters....................................16
SECTION 4.3. Action by Certificateholders with Respect to
Bankruptcy.........................................17
SECTION 4.4. Restrictions on Certificateholders' Power....................17
SECTION 4.5. Majority Control.............................................17
SECTION 4.6. Execution of Documents.......................................17
ARTICLE V - APPLICATION OF TRUST FUNDS: CERTAIN DUTIES
SECTION 5.1. Establishment of Certificate Distribution
Account............................................17
SECTION 5.2. Application of Funds in Certificate
Distribution Account...............................18
SECTION 5.3. [Reserved] ...................................................18
SECTION 5.4. Method of Payment............................................19
SECTION 5.5. No Segregation of Monies; No Interest........................19
SECTION 5.6. Accounting and Reports to the Noteholders,
Certificateholders, the Internal Revenue
Service and Others.................................19
SECTION 5.7. Signature on Returns; Tax Matters Partner....................20
ARTICLE VI - AUTHORITY AND DUTIES OF OWNER TRUSTEE
SECTION 6.1. General Authority............................................20
SECTION 6.2. Action upon Instruction.......................................21
SECTION 6.3. No Duties Except as Specified in this
Agreement or in Instructions......................21
SECTION 6.4. No Action Except under Specified Documents or
Instructions.......................................22
SECTION 6.5. Restrictions.................................................22
SECTION 6.6. Notice of Default Under Indenture.............................22
ARTICLE VII - CONCERNING THE OWNER TRUSTEE
SECTION 7.1. Acceptance of Trusts and Duties...............................22
SECTION 7.2. Furnishing of Documents.......................................24
SECTION 7.3. Representations and Warranties...............................24
SECTION 7.4. Reliance; Advice of Counsel..................................24
SECTION 7.5. Not Acting in Individual Capacity............................25
SECTION 7.6. Owner Trustee Not Liable for Trust
Certificates or Mortgage Loans....................25
SECTION 7.7. Owner Trustee May Own Trust Certificates and
Notes..............................................26
ARTICLE VIII - COMPENSATION OF OWNER TRUSTEE
SECTION 8.1. Owner Trustee's Fees and Expenses............................26
SECTION 8.2. Indemnification..............................................26
SECTION 8.3. Payments to the Owner Trustee................................26
ARTICLE IX - DISSOLUTION AND TERMINATION OF TRUST
SECTION 9.1. Termination of Trust Agreement...............................27
SECTION 9.2. Dissolution upon Bankruptcy of the Holder of
the GP Interest....................................28
ARTICLE X - SUCCESSOR OWNER TRUSTEES AND ADDITIONAL OWNER
TRUSTEES
SECTION 10.1. Eligibility Requirements for Owner Trustee...................29
SECTION 10.2. Resignation or Removal of Owner Trustee......................29
SECTION 10.3. Successor Owner Trustee......................................30
SECTION 10.4. Merger or Consolidation of Owner Trustee.....................30
SECTION 10.5. Appointment of Co-Trustee or Separate Trustee................31
ARTICLE XI - MISCELLANEOUS
SECTION 11.1. Supplements and Amendments....................................32
SECTION 11.2. No Legal Title to Owner Trust Estate in
Certificateholders.................................33
SECTION 11.3. Limitations on Rights of Others..............................33
SECTION 11.4. Notices ...................................................33
SECTION 11.5. Severability.................................................34
SECTION 11.6. Separate Counterparts........................................34
SECTION 11.7. Successors and Assigns.......................................34
SECTION 11.8. [Reserved]...................................................34
SECTION 11.9. No Petition..................................................34
SECTION 11.10. No Recourse.................................................35
SECTION 11.11. Headings ...................................................35
SECTION 11.12. GOVERNING LAW...............................................35
SECTION 11.13. [Reserved]..................................................35
SECTION 11.14. Servicer ...................................................35
<PAGE>
TRUST AGREEMENT dated as of ______ __,
1997 between The Money Store Inc., as
Representative for the Originators listed on
Annex I hereto, and _________________ as
Owner Trustee.
ARTICLE I.
DEFINITIONS
SECTION 1.1. CAPITALIZED TERMS. For all purposes of this
Agreement, the following terms shall have the meanings set forth below:
"Agreement" shall mean this Trust Agreement, as the same may be
amended and supplemented from time to time.
"Basic Documents" shall mean the Sale and Servicing Agreement, the
Indenture, the Certificate Depository Agreement, the Note Depository Agreement
and the other documents and certificates delivered in connection therewith.
"Benefit Plan" shall have the meaning assigned to such term in Section
3.17.
"Book Entry Trust Certificates" means a beneficial interest in the
Trust Certificates, ownership and transfers of which shall be made through book
entries by a Clearing Agency as described in Section 3.14.
"Business Trust Statute" shall mean Chapter 38 of Title 12 of the
Delaware Code, 12 DEL. CODE ss. 3801 ET SEQ., as the same may be amended from
time to time.
"Certificate" means a certificate evidencing the beneficial interest
of a Certificateholder in the Trust, substantially in the form of Exhibit A
attached hereto.
"Certificate Depository Agreement" shall mean the agreement among the
Trust, the Servicer and The Depository Trust Company, as the initial Clearing
Agency, dated as of one Business Day prior to the Closing Date, relating to the
Trust Certificates, substantially in the form attached hereto as Exhibit C, as
the same may be amended and supplemented from time to time.
"Certificate Distribution Account" shall have the meaning assigned to
such term in Section 5.1.
"Certificate of Trust" shall mean the Certificate of Trust in the form
of Exhibit B to be filed for the Trust pursuant to Section 3810(a) of the
Business Trust Statute.
"Certificate Register" and "Certificate Registrar" shall mean the
register mentioned and the registrar appointed pursuant to Section 3.4.
"Clearing Agency" means an organization registered as a "clearing
agency" pursuant to Section 17A of the Exchange Act.
"Clearing Agency Participant" means a broker, dealer, bank, other
financial institution or other Person for whom from time to time a Clearing
Agency effects book-entry transfers and pledges of securities deposited with the
Clearing Agency.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and Treasury Regulations promulgated thereunder.
"Corporate Trust Office" shall mean, with respect to the Owner
Trustee, the principal corporate trust office of the Owner Trustee located
_______________________, Attention: _____________; or at such other address as
the Owner Trustee may designate by notice to the Certificateholders and the
Representative, or the principal corporate trust office of any successor Owner
Trustee (the address of which the successor owner trustee will notify the
Certificateholders and the Representative).
"Definitive Trust Certificates" shall mean either or both (as the
context requires) of (i) Trust Certificates issued in certificated, fully
registered form as provided in Section 3.14 and (ii) Trust Certificates issued
in certificated, fully registered form as provided in Section 3.16.
"Demand Note" shall have the meaning assigned to such term in Section
2.11(e).
"Delaware Trustee" shall have the meaning assigned to such term in
Section 10.1.
"ERISA" shall have the meaning assigned to such term in Section 3.17.
"Expenses" shall have the meaning assigned to such term in Section
8.2.
"GP Interest" shall have the meaning assigned to such term in Section
2.7.
"Holder" or "Certificateholder" shall mean the Person in whose name a
Trust Certificate is registered on the Certificate Register.
["____________" or "holder of the GP Interest" means ______________, a
__________ special purpose corporation and an Affiliate of The Money Store.]
"Indemnified Parties" shall have the meaning assigned to such term in
Section 8.2.
"Note Depository Agreement" shall mean the agreement among the Trust,
the Trustee, the Servicer and The Depository Trust Company, as the initial
Clearing Agency, dated as of one Business Day prior to the Closing Date,
relating to the Notes, as the same may be amended or supplemented from time to
time.
"Originator" shall mean each entity listed on Annex I attached hereto.
"Owner" shall mean each Person who is the beneficial owner of a Book
Entry Certificate as reflected in the records of the Clearing Agency or if a
Clearing Agency Participant is not the Owner, then as reflected in records of a
Person maintaining an account with such Clearing Agency (directly or indirectly,
in accordance with the rules of such Clearing Agency).
"Owner Trust Estate" shall mean all right, title and interest of the
Trust in and to the property and rights assigned to the Trust pursuant to
Article II of the Sale and Servicing Agreement, all funds on deposit from time
to time in the Trust Accounts and the Certificate Distribution Account and all
other property of the Trust from time to time, including any rights of the Owner
Trustee and the Trust pursuant to the Sale and Servicing Agreement.
"Owner Trustee" shall mean _______________________, a _______________,
not in its individual capacity but solely as owner trustee under this Agreement,
and any successor Owner Trustee hereunder.
"Paying Agent" shall mean any paying agent or co-paying agent
appointed pursuant to Section 3.9 and shall initially be the Owner Trustee.
"Record Date" shall mean, with respect to any Remittance Date, the
close of business on the fourteenth day of the calendar month in which such
Remittance Date occurs.
"Representative" shall mean The Money Store Inc., a New Jersey
corporation, as Representative of the Originators.
"Responsible Officer" shall mean, when used with respect to the Owner
Trustee, any officer assigned to the Corporate Trust Office of the Owner
Trustee, including any Vice President, any Assistant Vice President, any trust
officer or any other officer of the Owner Trustee customarily performing
functions similar to those performed by any of the above designated officers or
any agent acting under a power of attorney from the Owner Trustee, having
responsibility for the administration of this Trust Agreement, as the case may
be, and also, with respect to a particular matter relating to the Trust, any
other officer of the Owner Trustee to whom such matter is referred because of
such officer's knowledge of and familiarity with such matter. Any notice given
to the address and in the manner specified in Section 11.4 hereof shall be
deemed to be given to a Responsible Officer.
"Sale and Servicing Agreement" shall mean the Sale and Servicing
Agreement among ___________________________________________dated as of ______
__, 199_, as the same may be amended and supplemented from time to time.
"Secretary of State" shall mean the Secretary of State of the State of
Delaware.
"Servicer" means The Money Store Inc., a New Jersey corporation, under
the Sale and Servicing Agreement.
"Treasury Regulations" shall mean regulations, including proposed or
temporary regulations, promulgated under the Code. References herein to specific
provisions of proposed or temporary regulations shall include analogous
provisions of final Treasury Regulations or other successor Treasury
Regulations.
"Trust" shall mean the trust established by this Agreement.
"Trust Certificate" shall mean a Certificate.
SECTION 1.2. Other Definitional Provisions.
(a) Capitalized terms used herein and not otherwise defined have
the meanings assigned to them in the Sale and Servicing Agreement or, if not
defined therein, in the Indenture.
(b) All terms defined in this Agreement shall have the defined
meanings when used in any certificate or other document made or delivered
pursuant hereto unless otherwise defined therein.
(c) As used in this Agreement and in any certificate or other
document made or delivered pursuant hereto or thereto, accounting terms not
defined in this Agreement or in any such certificate or other document, and
accounting terms partly defined in this Agreement or in any such certificate or
other document to the extent not defined, shall have the respective meanings
given to them under generally accepted accounting principles as in effect on the
date of this Agreement or any such certificate or other document, as applicable.
To the extent that the definitions of accounting terms in this Agreement or in
any such certificate or other document are inconsistent with the meanings of
such terms under generally accepted accounting principles, the definitions
contained in this Agreement or in any such certificate or other document shall
control.
(d) The words "hereof," "herein," "hereunder" and words of
similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement; Section and Exhibit
references contained in this Agreement are references to Sections and Exhibits
in or to this Agreement unless otherwise specified; and the term "including"
shall mean "including without limitation."
(e) The definitions contained in this Agreement are applicable to
the singular as well as the plural forms of such terms and to the masculine as
well as to the feminine and neuter genders of such terms.
<PAGE>
ARTICLE II.
ORGANIZATION
SECTION 2.1. NAME. The Trust created hereby shall be known as "The
Money Store Trust 1997-_", in which name the Owner Trustee may engage in the
transactions contemplated hereby, make and execute contracts and other
instruments on behalf of the Trust and sue and be sued.
SECTION 2.2. OFFICE. The office of the Trust shall be in care of the
Owner Trustee at the Corporate Trust Office or at such other address as the
Owner Trustee may designate by written notice to the Certificateholders and the
Representative.
SECTION 2.3. PURPOSES AND POWERS. (a) The purpose of the Trust is, and
the Trust shall have the power and authority, to engage in the following
activities:
(i) to issue the Notes pursuant to the Indenture and the Trust
Certificates pursuant to this Agreement, and to sell the Notes and the
Trust Certificates;
(ii) with the proceeds of the sale of the Notes and the Trust
Certificates, to pay the organizational, start-up and transactional
expenses of the Trust and to pay the balance to the Originators
pursuant to the Sale and Servicing Agreement;
(iii) to acquire, receive and accept from time to time the Owner
Trust Estate, and to assign, grant, transfer, pledge, mortgage and
convey the Trust Estate pursuant to the Indenture and to hold, manage
and distribute to the Certificateholders pursuant to the terms of the
Sale and Servicing Agreement any portion of the Trust Estate released
from the lien of, and remitted to the Trust pursuant to, the
Indenture;
(iv) to enter into and perform its obligations under the Basic
Documents to which it is a party;
(v) to engage in those activities, including entering into
agreements, that are necessary, suitable or convenient to accomplish
the foregoing or are incidental thereto or connected therewith; and
(vi) subject to compliance with the Basic Documents to which the
Trust is a party, to engage in such other activities as may be
required in connection with conservation of the Owner Trust Estate and
the making of distributions to the Certificateholders and the
Noteholders.
The Trust is hereby authorized to engage in the foregoing activities. The Trust
shall not engage in any activity other than in connection with the foregoing or
other than as required or authorized by the terms of this Agreement or the Basic
Documents.
SECTION 2.4. APPOINTMENT OF OWNER TRUSTEE. The Representative hereby
appoints the Owner Trustee as trustee of the Trust effective as of the date
hereof, to have all the rights, powers and duties set forth herein.
SECTION 2.5. INITIAL CAPITAL CONTRIBUTION OF TRUST ESTATE. The
Representative hereby sells, assigns, transfers, conveys and sets over to the
Owner Trustee, as of the date hereof, the sum of $1. The Owner Trustee hereby
acknowledges receipt in trust from the Representative, as of the date hereof, of
the foregoing contribution, which shall constitute the initial Owner Trust
Estate and shall be deposited in the Certificate Distribution Account.
SECTION 2.6. DECLARATION OF TRUST. The Owner Trustee hereby declares
that it will hold the Owner Trust Estate in trust upon and subject to the
conditions set forth herein for the use and benefit of the Noteholders and the
Certificateholders, subject to the obligations of the Trust under the Basic
Documents to which the Trust is a party. It is the intention of the parties
hereto that the Trust constitute a business trust under the Business Trust
Statute and that this Agreement constitute the governing instrument of such
business trust. It is the intention of the parties hereto that, solely for
income and franchise tax purposes, the Trust shall be treated as a partnership.
The parties agree that, unless otherwise required by appropriate tax
authorities, the Trust will file or cause to be filed annual or other necessary
returns, reports and other forms consistent with the characterization of the
Trust as a partnership for such tax purposes. Effective as of the date hereof,
the Owner Trustee shall have all rights, powers and duties set forth herein and
to the extent not inconsistent herewith, in the Business Trust Statute with
respect to accomplishing the purposes of the Trust. The Owner Trustee shall file
the Certificate of Trust with the Secretary of State.
SECTION 2.7. TRANSFER OF INTEREST TO THE REPRESENTATIVE; LIABILITY OF
THE HOLDER OF THE GP INTEREST. (a) On the Closing Date _____________ shall
purchase a 1% interest in the Trust (the "GP Interest"). The holder of the GP
Interest shall pay organizational expenses of the Trust as they may arise or
shall, upon the request of the Owner Trustee, promptly reimburse the Owner
Trustee for any such expenses paid by the Owner Trustee. The holder of the GP
Interest shall also be liable directly to and will indemnify the injured party
for all losses, claims, damages, liabilities and expenses of the Trust
(including Expenses, to the extent not paid out of the Owner Trust Estate) to
the extent that the holder of the GP Interest would be liable if the Trust were
a partnership under the Delaware Revised Uniform Limited Partnership Act in
which the holder of the GP Interest were a general partner; PROVIDED, HOWEVER,
that the holder of the GP Interest shall not be liable for any losses incurred
by a Certificateholder in the capacity of an investor in the Trust Certificates
or a Noteholder in the capacity of an investor in the Notes. In addition, any
third party creditors of the Trust (other than in connection with the
obligations described in the preceding sentence for which the holder of the GP
Interest shall not be liable) shall be deemed third party beneficiaries of this
paragraph. The obligations of the holder of the GP Interest under this paragraph
shall be evidenced by the Trust Certificates described in Section 3.12, which
for purposes of the Business Trust Statute shall be deemed to be a separate
class of Trust Certificates from all other Trust Certificates issued by the
Trust.
(b) No Holder, other than to the extent set forth in clause (a),
shall have any personal liability for any liability or obligation of the Trust.
SECTION 2.8. TITLE TO TRUST PROPERTY. Legal title to all the Owner
Trust Estate shall be vested at all times in the Trust as a separate legal
entity except where applicable law in any jurisdiction requires title to any
part of the Owner Trust Estate to be vested in a trustee or trustees, in which
case title shall be deemed to be vested in the Owner Trustee, a co-trustee
and/or a separate trustee, as the case may be.
SECTION 2.9. SITUS OF TRUST. The Trust will be located and
administered in the State of Delaware. All bank accounts maintained by the Owner
Trustee on behalf of the Trust shall be located in the State of Delaware or the
State of New York. Payments will be received by the Trust only in Delaware or
New York, and payments will be made by the Trust only from Delaware or New York.
The only office of the Trust will be at the Corporate Trust Office in Delaware.
SECTION 2.10. [RESERVED].
SECTION 2.11. REPRESENTATIONS AND WARRANTIES OF THE REPRESENTATIVE.
The Representative hereby represents and warrants to the Owner Trustee that:
(a) The Representative is duly organized and
validly existing as a New Jersey corporation with power and authority to own its
properties and to conduct its business as such properties are currently owned
and such business is presently conducted.
(b) The Representative has the corporate power
and authority to execute and deliver this Agreement and to carry out its terms
and the execution, delivery and performance of this Agreement has been duly
authorized by the Representative by all necessary corporate action.
(c) The consummation of the transactions
contemplated by this Agreement and the fulfillment of the terms hereof do not
conflict with, result in any breach of any of the terms and provisions of, or
constitute (with or without notice or lapse of time) a default under, the
articles of incorporation or by-laws of the Representative, or any material
indenture, agreement or other instrument to which the Representative is a party
or by which it is bound; nor result in the creation or imposition of any lien
upon any of its properties pursuant to the terms of any such indenture,
agreement or other instrument (other than pursuant to the Basic Documents); nor
violate any law or, to the best of the Representative's knowledge, any order,
rule or regulation applicable to the Representative of any court or of any
Federal or state regulatory body, administrative agency or other governmental
instrumentality having jurisdiction over the Representative or its properties.
(d) It is duly qualified to do business as a
foreign corporation in good standing, and has obtained all necessary licenses
and approvals in all jurisdictions in which the ownership or lease of property
or the conduct of its business shall require such qualifications.
SECTION 2.12. FEDERAL INCOME TAX ALLOCATIONS. Net income of the Trust
for any month as determined for Federal income tax purposes (and each item of
income, gain, loss, credit and deduction entering into the computation thereof)
shall be allocated:
(a) to the extent of available net income, among
the Certificateholders as of the first Record Date following the end of such
month, in proportion to their ownership of principal amount of Trust
Certificates on such date, an amount of net income up to the sum of (i) the
Certificateholders' Interest Distribution Amount for such month, (ii) interest
on the excess, if any, of the Certificateholders' Interest Distribution Amount
for the preceding Remittance Date over the amount in respect of interest at the
Certificate Rate that is actually deposited in the Certificate Distribution
Account on such preceding Remittance Date, to the extent permitted by law, at
the Certificate Rate from such preceding Remittance Date through the current
Remittance Date, and (iii) the portion of the market discount on the Mortgage
Loans accrued during such month that is allocable to the excess of the initial
aggregate principal amount of the Trust Certificates over their initial
aggregate issue price; and
(b) to the holder of the GP Interest, to the
extent of any remaining net income. If the net income of the Trust for any month
is insufficient for the allocations described in clause (a) above, subsequent
net income shall first be allocated to make up such shortfall before being
allocated as provided in clause (b). Net losses of the Trust, if any, for any
month as determined for Federal income tax purposes (and each item of income,
gain, loss, credit and deduction entering into the computation thereof) shall be
allocated to the holder of the GP Interest to the extent the holder of the GP
Interest is reasonably expected as determined by the Servicer to bear the
economic burden of such net losses, then net losses shall be allocated among the
Certificateholders as of the first Record Date following the end of such month
in proportion to their ownership of principal amount of Trust Certificates on
such Record Date until the principal balance of the Trust Certificates is
reduced to zero. The holder of the GP Interest is authorized to modify the
allocations in this paragraph if necessary or appropriate, in its sole
discretion, for the allocations to fairly reflect the economic income, gain or
loss to the holder of the GP Interest, the Certificateholders, or as otherwise
required by the Code.
ARTICLE III.
TRUST CERTIFICATES AND TRANSFER OF INTERESTS
SECTION 3.1. INITIAL OWNERSHIP. Upon the formation of the Trust by the
contribution by the Representative pursuant to Section 2.5 and until the
issuance of the Trust Certificates, the Representative shall be the sole
beneficiary of the Trust.
SECTION 3.2. THE TRUST CERTIFICATES. The Trust Certificates shall be
issued in denominations of $1,000 and integral multiples of $1,000 in excess
thereof; PROVIDED, however, that (a) Trust Certificates may be issued to the
holder of the GP Interest pursuant to Section 2.7 in such denominations as to
represent at least 1% of the initial Certificate Balance and (b) one Trust
Certificate may be issued in a denomination other than an integral multiple of
$1,000. The Trust Certificates shall be executed on behalf of the Trust by
manual or facsimile signature of an authorized officer of the Owner Trustee.
Trust Certificates bearing the manual or facsimile signatures of individuals who
were, at the time when such signatures shall have been affixed, authorized to
sign on behalf of the Trust, shall be validly issued and entitled to the benefit
of this Agreement, notwithstanding that such individuals or any of them shall
have ceased to be so authorized prior to the authentication and delivery of such
Trust Certificates or did not hold such offices at the date of authentication
and delivery of such Trust Certificates. A transferee of a Trust Certificate
shall become a Certificateholder, and shall be entitled to the rights and
subject to the obligations of a Certificateholder hereunder, upon due
registration of such Trust Certificate in such transferee's name pursuant to
Section 3.4.
SECTION 3.3. AUTHENTICATION OF TRUST CERTIFICATES. Concurrently with
the initial sale of the Mortgage Loans to the Trust pursuant to the Sale and
Servicing Agreement, the Owner Trustee shall cause the Trust Certificates in an
aggregate principal amount equal to the initial Certificate Balance to be
executed on behalf of the Trust, authenticated and delivered to or upon the
written order of the Representative, signed by an Authorized Officer, without
further corporate action by the Representative, in authorized denominations. No
Trust Certificate shall entitle its holder to any benefit under this Agreement,
or shall be valid for any purpose, unless there shall appear on such Trust
Certificate a certificate of authentication substantially in the form set forth
in Exhibit A, executed by the Owner Trustee by manual signature; such
authentication shall constitute conclusive evidence that such Trust Certificate
shall have been duly authenticated and delivered hereunder. All Trust
Certificates shall be dated the date of their authentication. _______ is hereby
appointed as the Owner Trustee's authenticating agent for the Trust
Certificates. Any reference herein regarding the Owner Trustee's authentication
of the Trust Certificates shall be deemed to include _______.
SECTION 3.4. REGISTRATION OF TRANSFER AND EXCHANGE OF TRUST
CERTIFICATES. The Certificate Registrar shall keep or cause to be kept, at the
office or agency maintained pursuant to Section 3.8, a Certificate Register in
which, subject to such reasonable regulations as it may prescribe, the Owner
Trustee shall provide for the registration of Trust Certificates and of
transfers and exchanges of Trust Certificates as herein provided. ________ shall
be the initial Certificate Registrar.
Upon surrender for registration of transfer of any Trust Certificate
at the office or agency maintained pursuant to Section 3.8, and, upon
satisfaction of the conditions set forth below, the Owner Trustee shall execute,
authenticate and deliver, in the name of the designated transferee or
transferees, one or more new Trust Certificates in authorized denominations of a
like class and aggregate face amount dated the date of authentication by the
Owner Trustee or any authenticating agent. At the option of a Holder, Trust
Certificates may be exchanged for other Trust Certificates of the same class in
authorized denominations of a like aggregate amount upon surrender of the Trust
Certificates to be exchanged at the office or agency maintained pursuant to
Section 3.8.
Every Trust Certificate presented or surrendered for registration of
transfer or exchange shall be accompanied by a written instrument of transfer in
form satisfactory to the Owner Trustee and the Certificate Registrar duly
executed by the Certificateholder or his attorney duly authorized in writing,
with such signature guaranteed by an "eligible guarantor institution" meeting
the requirements of the Certificate Registrar, which requirements include
membership or participation in the Securities Transfer Agent's Medallion Program
("STAMP") or such other "signature guarantee program" as may be determined by
the Certificate Registrar in addition to, or in substitution for, STAMP, all in
accordance with the Exchange Act. Each Trust Certificate surrendered for
registration of transfer or exchange shall be canceled and subsequently disposed
of by the Owner Trustee in accordance with its customary practice.
No service charge shall be made for any registration of transfer or
exchange of Trust Certificates, but the Owner Trustee or the Certificate
Registrar may, but shall not be obligated to, require payment of a sum
sufficient to cover any tax or governmental charge that may be imposed in
connection with any transfer or exchange of Trust Certificates.
SECTION 3.5. MUTILATED, DESTROYED, LOST OR STOLEN TRUST CERTIFICATES.
If (a) any mutilated Trust Certificate shall be surrendered to the Certificate
Registrar, or if the Certificate Registrar shall receive evidence to its
satisfaction of the destruction, loss or theft of any Trust Certificate and (b)
there shall be delivered to the Certificate Registrar and the Owner Trustee such
security or indemnity as may be required by them to save each of them harmless,
then in the absence of actual knowledge by a Responsible Officer of the Owner
Trustee that such Trust Certificate shall have been acquired by a bona fide
purchaser, the Owner Trustee on behalf of the Trust shall execute and the Owner
Trustee shall authenticate and deliver, in exchange for or in lieu of any such
mutilated, destroyed, lost or stolen Trust Certificate, a new Trust Certificate
of like class, tenor and denomination. In connection with the issuance of any
new Trust Certificate under this Section, the Owner Trustee or the Certificate
Registrar may, but shall not be obligated to, require the payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection therewith. Any duplicate Trust Certificate issued pursuant to this
Section shall constitute conclusive evidence of an ownership interest in the
Trust, as if originally issued, whether or not the lost, stolen or destroyed
Trust Certificate shall be found at any time.
SECTION 3.6. PERSONS DEEMED CERTIFICATEHOLDERS. Every person by virtue
of becoming a Certificateholder or Owner in accordance with this Agreement and
the rules and regulations of the Clearing Agency shall be deemed to be bound by
the terms of this Agreement. Prior to due presentation of a Trust Certificate
for registration of transfer, the Owner Trustee or the Certificate Registrar may
treat the Person in whose name any Trust Certificate shall be registered in the
Certificate Register as the Owner of such Trust Certificate for the purpose of
receiving distributions pursuant to Section 5.2 and for all other purposes
whatsoever, and neither the Owner Trustee nor the Certificate Registrar shall be
bound by any notice to the contrary.
SECTION 3.7. ACCESS TO LIST OF CERTIFICATEHOLDERS' NAMES AND
ADDRESSES. The Owner Trustee shall furnish or cause to be furnished to the
Servicer, the Representative, and the holder of the GP Interest, within 15 days
after receipt by the Owner Trustee of a request therefor from the Servicer, the
Representative, the or the holder of the GP Interest in writing, a list, in such
form as the Servicer, the Representative, the or the holder of the GP Interest
may reasonably require, of the names and addresses of the Certificateholders as
of the most recent Record Date. If three or more Holders of Trust Certificates
or one or more Holders of Trust Certificates evidencing not less than 25% of the
Certificate Balance apply in writing to the Owner Trustee, and such application
states that the applicants desire to communicate with other Certificateholders
with respect to their rights under this Agreement or under the Trust
Certificates and such application is accompanied by a copy of the communication
that such applicants propose to transmit, then the Owner Trustee shall, within
five Business Days after the receipt of such application, afford such applicants
access during normal business hours to the current list of Certificateholders.
Each Holder, by receiving and holding a Trust Certificate, shall be deemed to
have agreed not to hold either the Representative, or the Owner Trustee
accountable by reason of the disclosure of its name and address, regardless of
the source from which such information was derived.
SECTION 3.8. MAINTENANCE OF OFFICE OR AGENCY. The Owner Trustee shall
maintain in the Borough of Manhattan, City of New York, an office or offices or
agency or agencies where Trust Certificates may be surrendered for registration
of transfer or exchange and where notices and demands to or upon the Owner
Trustee in respect of the Trust Certificates and the Basic Documents may be
served. The Owner Trustee initially designates _______ as its agent for such
purposes. The Owner Trustee shall give prompt written notice to and to the
Certificateholders of any change in the location of the Certificate Register or
any such office or agency.
SECTION 3.9. APPOINTMENT OF PAYING AGENT. The Paying Agent shall make
distributions to Certificateholders from the Certificate Distribution Account
pursuant to Section 5.2 and shall report the amounts of such distributions to
the Owner Trustee. Any Paying Agent shall have the revocable power to withdraw
funds from the Certificate Distribution Account for the purpose of making the
distributions referred to above. The Owner Trustee may revoke such power and
remove the Paying Agent if the Owner Trustee determines in its sole discretion
that the Paying Agent shall have failed to perform its obligations under this
Agreement in any material respect. The Paying Agent shall initially be
_________, and any co-paying agent chosen by ___________, and acceptable to the
Servicer. The Paying Agent shall be permitted to resign upon 30 days' written
notice to the Owner Trustee and the Servicer. In the event that the Owner
Trustee shall no longer be the Paying Agent, the Owner Trustee shall appoint a
successor to act as Paying Agent (which shall be a bank or trust company). The
Owner Trustee shall cause such successor Paying Agent or any additional Paying
Agent appointed by the Owner Trustee to execute and deliver to the Owner Trustee
an instrument in which such successor Paying Agent or additional Paying Agent
shall agree with the Owner Trustee that as Paying Agent, such successor Paying
Agent or additional Paying Agent will hold all sums, if any, held by it for
payment to the Certificateholders in trust for the benefit of the
Certificateholders entitled thereto until such sums shall be paid to such
Certificateholders. The Paying Agent shall return all unclaimed funds to the
Owner Trustee and upon removal of a Paying Agent such Paying Agent shall also
return all funds in its possession to the Owner Trustee. The provisions of
Articles VII and VIII shall apply to _______ or the Owner Trustee also in its
role as Paying Agent, for so long as _______ or the Owner Trustee shall act as
Paying Agent and, to the extent applicable, to any other paying agent appointed
hereunder. Any reference in this Agreement to the Paying Agent shall include any
co-paying agent unless the context requires otherwise.
SECTION 3.10. [Reserved]
SECTION 3.11. [Reserved]
SECTION 3.12. DISPOSITION BY THE HOLDER OF THE GP Interest. On and
after the Closing Date, the holder of the GP Interest shall retain beneficial
and record ownership of Trust Certificates representing at least 1% of the
initial Certificate Balance. Any attempted transfer of any Trust Certificate
that would reduce such interest of the holder of the GP Interest below 1% of the
Certificate Balance shall be void. The Owner Trustee shall cause any Trust
Certificate issued to the holder of the GP Interest to contain a legend stating
"THIS CERTIFICATE IS NOT TRANSFERABLE".
SECTION 3.13. [Reserved]
SECTION 3.14. BOOK-ENTRY TRUST CERTIFICATES. The Trust Certificates,
upon original issuance, will be issued in the form of a typewritten Trust
Certificate or Trust Certificates representing Book-Entry Trust Certificates, to
be delivered to The Depository Trust Company, the initial Clearing Agency, by or
on behalf of the Trust; PROVIDED, HOWEVER, that one Definitive Certificate (as
defined below) may be issued to ___________, as holder of the GP Interest
pursuant to Section 2.7. Such Book-Entry Trust Certificate or Trust Certificates
shall initially be registered on the Certificate Register in the name of Cede &
Co., the nominee of the initial Clearing Agency, and no beneficial owner (other
than the Representative and the holder of the GP Interest) will receive a
definitive Trust Certificate representing such beneficial owner's interest in
such Trust Certificate, except as provided in Section 3.16. Unless and until
Definitive Trust Certificates have been issued to beneficial owners pursuant to
Section 3.16:
(i) the provisions of this Section shall be in
full force and effect;
(ii) the Certificate Registrar and the Owner Trustee
shall be entitled to deal with the Clearing Agency for all
purposes of this Agreement relating to the Book-Entry Trust
Certificates (including the payment of principal of and
interest on the Book-Entry Trust Certificates and the giving
of instructions or directions to Owners of Book-Entry Trust
Certificates) as the sole Holder of Book-Entry Trust
Certificates and shall have no obligations to the Owners
thereof;
(iii) to the extent that the provisions of this
Section conflict with any other provisions of this Agreement,
the provisions of this Section shall control;
(iv) the rights of the Owners of the Book-Entry Trust
Certificates shall be exercised only through the Clearing
Agency and shall be limited to those established by law and
agreements between such Owners and the Clearing Agency and/or
the Clearing Agency Participants. Pursuant to the Certificate
Depository Agreement, unless and until Definitive Trust
Certificates are issued pursuant to Section 3.16, the initial
Clearing Agency will make book-entry transfers among the
Clearing Agency Participants and receive and transmit
payments of principal of and interest on the Book-Entry Trust
Certificates to such Clearing Agency Participants; and
(v) whenever this Agreement requires or permits
actions to be taken based upon instructions or directions of
Holders of Trust Certificates evidencing a specified
percentage of the Certificate Balance, the Clearing Agency
shall be deemed to represent such percentage only to the
extent that it has received instructions to such effect from
Owners and/or Clearing Agency Participants owning or
representing, respectively, such required percentage of the
beneficial interest in the Book-Entry Trust Certificates and
has delivered such instructions to the Owner Trustee.
SECTION 3.15. NOTICES TO CLEARING AGENCY. Whenever a notice or other
communication to the Owners is required under this Agreement, unless and until
Definitive Trust Certificates shall have been issued to Owners pursuant to
Section 3.16, the Owner Trustee shall give all such notices and communications
specified herein to be given to Owners to the Clearing Agency, and shall have no
obligations to the Owners, except to the holder of the GP Interest.
SECTION 3.16. DEFINITIVE TRUST CERTIFICATES. If (i) the Servicer
advises the Owner Trustee in writing that the Clearing Agency is no longer
willing or able to properly discharge its responsibilities with respect to the
Trust Certificates, and the Servicer is unable to locate a qualified successor,
(ii) the Servicer at its option advises the Owner Trustee in writing that it
elects to terminate the book-entry system through the Clearing Agency or (iii)
after the occurrence of an Event of Default, Owners of Certificates representing
beneficial interests aggregating at least a majority of the Certificate Balance
advise the Clearing Agency in writing that the continuation of a book-entry
system through the Clearing Agency is no longer in the best interest of the
Owners of Trust Certificates, then the Clearing Agency shall notify all Owners
and the Owner Trustee of the occurrence of any such event and of the
availability of the Definitive Trust Certificates to Owners requesting the same.
Upon surrender to the Owner Trustee of the typewritten Trust Certificate or
Trust Certificates representing the Book Entry Trust Certificates by the
Clearing Agency, accompanied by registration instructions, the Owner Trustee
shall execute and authenticate the Definitive Trust Certificates in accordance
with the instructions of the Clearing Agency. Neither the Certificate Registrar
nor the Owner Trustee shall be liable for any delay in delivery of such
instructions and may conclusively rely on, and shall be protected in relying on,
such instructions. Upon the issuance of Definitive Trust Certificates, the Owner
Trustee shall recognize the Holders of the Definitive Trust Certificates as
Certificateholders. The Definitive Trust Certificates shall be printed,
lithographed or engraved or may be produced in any other manner as is reasonably
acceptable to the Owner Trustee, as evidenced by its execution thereof.
SECTION 3.17. TRUST CERTIFICATE TRANSFER RESTRICTIONS. The Trust
Certificates may not be acquired by or for the account of (i) an employee
benefit plan (as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")) that is subject to the provisions of
Title 1 of ERISA, (ii) a plan described in Section 4975(e) (1) of the Code, or
(iii) any entity whose underlying assets include plan assets by reason of a
plan's investment in the entity (each, a "Benefit Plan"). By accepting and
holding a Trust Certificate, the Holder thereof shall be deemed to have
represented and warranted that it is not a Benefit Plan.
ARTICLE IV.
ACTIONS BY OWNER TRUSTEE
SECTION 4.1. PRIOR NOTICE TO OWNERS WITH RESPECT TO CERTAIN MATTERS.
With respect to the following matters, the Owner Trustee shall not take action
unless at least 30 days before the taking of such action, the Owner Trustee
shall have notified the Certificateholders in writing of the proposed action and
the Certificateholders shall not have notified the Owner Trustee in writing
prior to the 30th day after such notice is given that such Certificateholders
have withheld consent or provided alternative direction:
(a) the initiation of any material claim or
lawsuit by the Trust except claims or lawsuits brought in connection with the
collection of the Mortgage Loans and the compromise of any material action,
claim or lawsuit brought by or against the Trust (except with respect to the
aforementioned claims or lawsuits for collection of the Mortgage Loans);
(b) the election by the Trust to file an
amendment to the Certificate of Trust (unless such amendment is
required to be filed under the Business Trust Statute);
(c) the amendment of the Indenture by a
supplemental indenture in circumstances where the consent of
any Noteholder is required;
(d) the amendment of the Indenture by a
supplemental indenture in circumstances where the consent of any Noteholder is
not required and such amendment materially adversely affects the interest of the
Certificateholders;
(e) the amendment, change or modification of the
Sale and Servicing Agreement, except to cure any ambiguity or defect or to amend
or supplement any provision in a manner that would not materially adversely
affect the interests of the Certificateholders; or
(f) the appointment pursuant to the Indenture of a
successor Trustee or the consent to the assignment by the Note Registrar, Paying
Agent or Trustee or Certificate Registrar of its obligations under the Indenture
or this Agreement, as applicable. The Owner Trustee shall notify the
Certificateholders in writing of any appointment of a successor Note Registrar,
Paying Agent or Certificate Registrar within five Business Days thereof.
SECTION 4.2. ACTION BY CERTIFICATEHOLDERS WITH RESPECT TO CERTAIN
MATTERS. The Owner Trustee shall not have the power, except upon the direction
of the Certificateholders, to (a) remove the Servicer under the Sale and
Servicing Agreement pursuant to Section 10.01 thereof or (b) sell the Mortgage
Loans after the termination of the Indenture. The Owner Trustee shall take the
actions referred to in the preceding sentence only upon written instructions
signed by the Certificateholders.
SECTION 4.3. ACTION BY CERTIFICATEHOLDERS WITH RESPECT TO BANKRUPTCY.
The Owner Trustee shall not have the power to commence a voluntary proceeding in
bankruptcy relating to the Trust without the unanimous prior approval of all
Certificateholders and the delivery to the Owner Trustee by each such
Certificateholder of a certificate certifying that such Certificateholder
reasonably believes that the Trust is insolvent.
SECTION 4.4. RESTRICTIONS ON CERTIFICATEHOLDERS' Power. The
Certificateholders shall not direct the Owner Trustee to take or refrain from
taking any action if such action or inaction would be contrary to any obligation
of the Trust or the Owner Trustee under this Agreement or any of the Basic
Documents or would be contrary to Section 2.3 nor shall the Owner Trustee be
obligated to determine if a Certificateholder's direction violates this Section
4.4 or to follow any such direction, if given.
SECTION 4.5. MAJORITY CONTROL. Except as otherwise specifically
provided herein, any action that may be taken by the Certificateholders under
this Agreement may be taken by the Holders of Trust Certificates evidencing not
less than a majority of the Certificate Balance. Except as otherwise
specifically provided herein, any written notice of the Certificateholders
delivered pursuant to this Agreement shall be effective if signed by Holders of
Certificates evidencing not less than a majority of the Certificate Balance at
the time of the delivery of such notice.
SECTION 4.6. EXECUTION OF DOCUMENTS. Notwithstanding anything herein
to the contrary, the Owner Trustee is authorized, empowered and directed, on
behalf of the Trust, to execute, deliver, issue and authenticate the
Certificates, to execute, deliver and issue the Notes, and to execute and
deliver each Basic Document to which the Trust or the Owner Trustee is or is to
be a party and any other document, instrument, certificate or other writing that
may be necessary, convenient or incidental thereto. Any such execution,
delivery, issuance and authentication is hereby ratified and confirmed in all
respects and does not and will be deemed not to conflict with, constitute or
result in a breach or violation of, or a default under, any provision of or any
duty under this Trust Agreement.
ARTICLE V.
APPLICATION OF TRUST FUNDS: CERTAIN DUTIES
SECTION 5.1. ESTABLISHMENT OF CERTIFICATE DISTRIBUTION ACCOUNT. The
Owner Trustee, for the benefit of the Certificateholders, shall establish and
maintain at _______ in the name of the Trust an eligible deposit account (the
"Certificate Distribution Account"), bearing a designation clearly indicating
that the funds deposited therein are held for the benefit of the
Certificateholders. Except as otherwise provided herein, the Certificate
Distribution Account shall be under the sole dominion and control of the Owner
Trustee for the benefit of the Certificateholders.
SECTION 5.2. APPLICATION OF FUNDS IN CERTIFICATE DISTRIBUTION ACCOUNT.
(a) On each Remittance Date, the Owner Trustee will, based on the information
contained in the Servicer's Certificate delivered on the related Determination
Date pursuant to Section 7.08 of the Sale and Servicing Agreement, distribute to
Certificateholders, to the extent of the funds available, amounts deposited in
the Certificate Distribution Account pursuant to Section 7.05 of the Sale and
Servicing Agreement on such Remittance Date in the following order of priority:
(i) first, to the Certificateholders, on a pro
rata basis, an amount equal to the
Certificateholders' Interest Distribution Amount; and
(ii) second, to the Certificateholders, on a pro rata
basis, an amount equal to the Certificateholders' Principal
Distribution Amount.
(b) On each Remittance Date, the Owner Trustee
shall send to each Certificateholder the statement provided to the Owner Trustee
by the Servicer pursuant to Section 5.8 of the Sale and Servicing Agreement on
such Remittance Date.
(c) In the event that any withholding tax is imposed
on the Trust's payment (or allocations of income) to a Certificateholder, such
tax shall reduce the amount otherwise distributable to the Certificateholder in
accordance with this Section. The Owner Trustee is hereby authorized and
directed to retain from amounts otherwise distributable to the
Certificateholders sufficient funds for the payment of any tax that is legally
owed by the Trust (but such authorization shall not prevent the Owner Trustee
from contesting any such tax in appropriate proceedings, and withholding payment
of such tax, if permitted by law, pending the outcome of such proceedings). The
amount of any withholding tax imposed with respect to a Certificateholder shall
be treated as cash distributed to such Certificateholder at the time it is
withheld by the Trust and remitted to the appropriate taxing authority. If there
is a possibility that withholding tax is payable with respect to a distribution
(such as a distribution to a non-US Certificateholder), the Owner Trustee may in
it sole discretion withhold such amounts in accordance with this clause (c). In
the event that an Owner wishes to apply for a refund of any such withholding
tax, the Owner Trustee shall reasonably cooperate with such Certificateholder in
making such claim so long as such Certificateholder agrees to reimburse the
Owner Trustee for any out-of-pocket expenses incurred. The Servicer shall
facilitate compliance with this Section 5.2(c) by performance of its duties
under Section 12.01 of the Sale and Servicing Agreement.
SECTION 5.3. [Reserved]
SECTION 5.4. METHOD OF PAYMENT. Subject to Section 9.1(c),
distributions required to be made to Certificateholders on any Remittance Date
shall be made to each Certificateholder of record on the preceding Record Date
either by wire transfer, in immediately available funds, to the account of such
Holder at a bank or other entity having appropriate facilities therefor, if (i)
such Certificateholder shall have provided to the Certificate Registrar
appropriate written instructions at least five Business Days prior to such
Remittance Date or (ii) such Certificateholder is the holder of the GP Interest,
or an Affiliate thereof, or, if not, by check mailed to such Certificateholder
at the address of such holder appearing in the Certificate Register; PROVIDED,
HOWEVER, that, unless Definitive Certificates have been issued pursuant to
Section 3.16, with respect to Trust Certificates registered on the Record Date
in the name of the nominee of the Clearing Agency (initially, such nominee to be
Cede & Co.), distributions will be made by wire transfer in immediately
available funds to the account designated by such nominee. Notwithstanding the
foregoing, the final distribution in respect of any Trust Certificate (whether
on the Final Scheduled Remittance Date or otherwise) will be payable only upon
presentation and surrender of such Trust Certificate at the office or agency
maintained for that purpose by the Owner Trustee pursuant to Section 3.8.
SECTION 5.5. NO SEGREGATION OF MONIES; NO INTEREST. Subject to
Sections 5.1 and 5.2, monies received by the Owner Trustee hereunder need not be
segregated in any manner except to the extent required by law and may be
deposited under such general conditions as may be prescribed by law. The Owner
Trustee shall not be liable for any interest thereon.
SECTION 5.6. ACCOUNTING AND REPORTS TO THE NOTEHOLDERS,
CERTIFICATEHOLDERS, THE INTERNAL REVENUE SERVICE AND OTHERS. Subject to Sections
12.01(b)(iii) and 12.01(c) of the Sale and Servicing Agreement, the holder of
the GP Interest shall (a) maintain (or cause to be maintained) the books of the
Trust on a calendar year basis on the accrual method of accounting, (b) deliver
(or cause to be delivered) to each Certificateholder, as may be required by the
Code and applicable Treasury Regulations, such information as may be required
(including Schedule K-1) to enable each Certificateholder to prepare its Federal
and state income tax returns, (c) prepare or cause to be prepared, and file or
cause to be filed, all tax returns relating to the Trust (including a
partnership information return, Form 1065), and direct the Owner Trustee to make
such elections as may from time to time be required or appropriate under any
applicable state or Federal statute or rule or regulation thereunder so as to
maintain the Trust's characterization as a partnership for Federal income tax
purposes and (d) collect or cause to be collected any withholding tax as
described in and in accordance with Section 5.2(c) with respect to income or
distributions to Certificateholders. The Owner Trustee shall make all elections
pursuant to this Section as directed by the holder of the GP Interest. The Owner
Trustee shall sign all tax information returns furnished to it in execution form
by the holder of the GP Interest, and filed pursuant to this Section 5.6 and any
other returns as may be required by law and so furnished to it by the holder of
the GP Interest, and in doing so shall rely entirely upon, and shall have no
liability for information provided by, or calculations provided by, the holder
of the GP Interest. The holder of the GP Interest shall cause the Trust to elect
under Section 1278 of the Code to include in income currently any market
discount that accrues with respect to the Mortgage Loans. The Trust shall not
make the election provided under Section 754 of the Code.
SECTION 5.7. SIGNATURE ON RETURNS; TAX MATTERS PARTNER. (a)
Notwithstanding the provisions of Section 5.6, the Owner Trustee shall sign on
behalf of the Trust the tax returns of the Trust furnished to it in execution
form by the holder of the GP Interest, unless applicable law requires a
Certificateholder or an Owner to sign such documents, in which case such
documents shall be signed by the holder of the GP Interest.
(b) The holder of the GP Interest shall be the "tax matters
partner" of the Trust pursuant to the Code.
ARTICLE VI.
AUTHORITY AND DUTIES OF OWNER TRUSTEE
SECTION 6.1. GENERAL AUTHORITY. The Owner Trustee is authorized and
directed to execute and deliver the Basic Documents to which the Trust is named
as a party and each certificate or other document attached as an exhibit to or
contemplated by the Basic Documents to which the Trust is named as a party and
any amendment thereto, in each case, in such form as the Representative shall
approve as evidenced conclusively by the Owner Trustee's execution thereof, and
on behalf of the Trust, to direct the Trustee to authenticate and deliver Notes
in the aggregate principal amount of $__________. In addition to the foregoing,
the Owner Trustee is authorized, but shall not be obligated, to take all actions
required of the Trust pursuant to the Basic Documents. The Owner Trustee is
further authorized from time to time to take such action as the Servicer
recommends to it in writing with respect to the Basic Documents.
It shall be the duty of the Owner Trustee to discharge (or cause to be
discharged) all of its responsibilities pursuant to the terms of this Agreement
and the Sale and Servicing Agreement and to administer the Trust in the interest
of the Owners, subject to the Basic Documents and in accordance with the
provisions of this Agreement. Notwithstanding the foregoing, the Owner Trustee
shall be deemed to have discharged its duties and responsibilities hereunder and
under the Basic Documents to the extent the Servicer has agreed in the Sale and
Servicing Agreement, or the holder of the GP Interest has agreed hereunder or
thereunder, to perform any act or to discharge any duty of the Owner Trustee
hereunder or of the Trust under any Basic Document, and the Owner Trustee shall
not be liable for the default or failure of the Servicer or the holder of the GP
Interest to carry out its obligations hereunder or thereunder.
SECTION 6.2. ACTION UPON INSTRUCTION. (a) Subject to Article IV, the
Certificateholders may, by written instruction, direct the Owner Trustee in the
management of the Trust. Such direction may be exercised at any time by written
instruction of the Certificateholders pursuant to Article IV.
(b) The Owner Trustee shall not be required to
take any action hereunder or under any Basic Document if the Owner Trustee shall
have reasonably determined, or shall have been advised by counsel, that such
action is likely to result in liability on the part of the Owner Trustee or is
contrary to the terms hereof or of any Basic Document or is otherwise contrary
to law.
(c) Whenever the Owner Trustee is unable to
decide between alternative courses of action permitted or required by the terms
of this Agreement or any Basic Document, the Owner Trustee shall promptly give
notice (in such form as shall be appropriate under the circumstances) to the
Certificateholders requesting instruction as to the course of action to be
adopted, and to the extent the Owner Trustee acts in good faith in accordance
with any written instruction of the Certificateholders received, the Owner
Trustee shall not be liable on account of such action to any Person. If the
Owner Trustee shall not have received appropriate instruction within ten days of
such notice (or within such shorter period of time as may be specified in such
notice or may be necessary under the circumstances) it may, but shall be under
no duty to, take or refrain from taking such action, not inconsistent with this
Agreement or the Basic Documents, as it shall deem to be in the best interests
of the Certificateholders, and shall have no liability to any Person for such
action or inaction.
(d) In the event that the Owner Trustee is
unsure as to the application of any provision of this Agreement or any Basic
Document or any such provision is ambiguous as to its application, or is, or
appears to be, in conflict with any other applicable provision, or in the event
that this Agreement permits any determination by the Owner Trustee or is silent
or is incomplete as to the course of action that the Owner Trustee is required
to take with respect to a particular set of facts, the Owner Trustee may give
notice (in such form as shall be appropriate under the circumstances) to the
Certificateholders requesting instruction and, to the extent that the Owner
Trustee acts or refrains from acting in good faith in accordance with any such
instruction received, the Owner Trustee shall not be liable, on account of such
action or inaction, to any Person. If the Owner Trustee shall not have received
appropriate instruction within 10 days of such notice (or within such shorter
period of time as may be specified in such notice or may be necessary under the
circumstances) it may, but shall be under no duty to, take or refrain from
taking such action, not inconsistent with this Agreement or the Basic Documents,
as it shall deem to be in the best interests of the Certificateholders, and
shall have no liability to any Person for such action or inaction.
SECTION 6.3. NO DUTIES EXCEPT AS SPECIFIED IN THIS AGREEMENT OR IN
INSTRUCTIONS. The Owner Trustee shall not have any duty or obligation to manage,
make any payment with respect to, register, record, sell, dispose of, or
otherwise deal with the Owner Trust Estate, or to otherwise take or refrain from
taking any action under, or in connection with, any document contemplated hereby
to which the Owner Trustee is a party, except as expressly provided by the terms
of this Agreement or in any direction or written instruction received by the
Owner Trustee pursuant to Section 6.3; and no implied duties or obligations
shall be read into this Agreement or any Basic Document against the Owner
Trustee. The Owner Trustee shall have no responsibility for filing any financing
or continuation or termination statement in any public office at any time or to
otherwise perfect or maintain the perfection of any security interest or lien or
to prepare or file any Securities and Exchange Commission filing for the Trust
or to record this Agreement or any Basic Document. The Owner Trustee
nevertheless agrees that it will, at its own cost and expense, promptly take all
action as may be necessary to discharge any Liens on any part of the Owner Trust
Estate that result from actions by, or claims against, the Owner Trustee that
are not related to the ownership or the administration of the Owner Trust
Estate.
SECTION 6.4. NO ACTION EXCEPT UNDER SPECIFIED DOCUMENTS OR
INSTRUCTIONS. The Owner Trustee shall not manage, control, use, sell, dispose of
or otherwise deal with any part of the Owner Trust Estate except (i) in
accordance with the powers granted to and the authority conferred upon the Owner
Trustee pursuant to this Agreement, (ii) in accordance with the Basic Documents
and (iii) in accordance with any direction or instruction delivered to the Owner
Trustee pursuant to Section 6.3.
SECTION 6.5. RESTRICTIONS. The Owner Trustee shall not take any action
(a) that is inconsistent with the purposes of the Trust set forth in Section 2.3
or (b) that, to the actual knowledge of a Responsible Officer of the Owner
Trustee, would result in the Trust's becoming taxable as a corporation for
Federal income tax purposes. The Certificateholders shall not direct the Owner
Trustee to take action that would violate the provisions of this Section.
SECTION 6.6. NOTICE OF DEFAULT UNDER INDENTURE. Within 5 business days
of receipt of a notice of Default under the Indenture, the Owner trustee shall
provide notice to each Certificateholder by letter.
ARTICLE VII.
CONCERNING THE OWNER TRUSTEE
SECTION 7.1. ACCEPTANCE OF TRUSTS AND DUTIES. The Owner Trustee
accepts the trusts hereby created and agrees to perform its duties hereunder
with respect to such trusts but only upon the terms of this Agreement. The Owner
Trustee also agrees to disburse all moneys actually received by it constituting
part of the Owner Trust Estate upon the terms of the Basic Documents and this
Agreement. The Owner Trustee shall not be answerable or accountable hereunder or
under any Basic Document under any circumstances, except (i) for its own willful
misconduct, bad faith or negligence or (ii) in the case of the inaccuracy of any
representation or warranty contained in Section 7.3 expressly made by the Owner
Trustee. In particular, but not by way of limitation (and subject to the
exceptions set forth in the preceding sentence):
(a) the Owner Trustee shall not be liable for
any error of judgment made by a Responsible Officer of the
Owner Trustee;
(b) the Owner Trustee shall not be liable with
respect to any action taken or omitted to be taken by it in accordance with
the instructions of the Servicer or any Certificateholder;
(c) no provision of this Agreement or any Basic
Document shall require the Owner Trustee to expend or risk funds or otherwise
incur any financial liability in the performance of any of its rights or powers
hereunder or under any Basic Document if the Owner Trustee shall have reasonable
grounds for believing that repayment of such funds or adequate indemnity against
such risk or liability is not reasonably assured or provided to it;
(d) under no circumstances shall the Owner
Trustee be liable for indebtedness evidenced by or arising under any of the
Basic Documents, including the principal of and interest on the Notes;
(e) the Owner Trustee shall not be responsible
for or in respect of the validity or sufficiency of this Agreement or for the
due execution hereof by the Representative, or for the form, character,
genuineness, sufficiency, value or validity of any of the Owner Trust Estate or
for or in respect of the validity or sufficiency of the Basic Documents, other
than the certificate of authentication on the Trust Certificates, and the Owner
Trustee shall in no event assume or incur any liability, duty or obligation to
any Noteholder or to any Certificateholder, other than as expressly provided for
herein and in the Basic Documents;
(f) the Owner Trustee shall not be liable for
the default or misconduct of the Trustee or the Servicer or the holder of the GP
Interest under any of the Basic Documents or otherwise and the Owner Trustee
shall have no obligation or liability to insure compliance by the Servicer or
the holder of the GP Interest with any agreement to which it is a party or to
perform the obligations of the Trust under this Agreement or the Basic Documents
that are required to be performed by the Trustee under the Indenture or the
Servicer under the Sale and Servicing Agreement or the holder of the GP Interest
under this Agreement; and
(g) the Owner Trustee shall be under no
obligation to exercise any of the rights or powers vested in it by this
Agreement, or to institute, conduct or defend any litigation under this
Agreement or otherwise or in relation to this Agreement or any Basic Document,
at the request, order or direction of any of the Certificateholders, unless such
Certificateholders have offered to the Owner Trustee security or indemnity
satisfactory to it against the costs, expenses and liabilities that may be
incurred by the Owner Trustee therein or
thereby. The right of the Owner Trustee to perform any discretionary act
enumerated in this Agreement or in any Basic Document shall not be construed as
a duty, and, except as otherwise provided in the third sentence of this Section
7.1, the Owner Trustee shall not be answerable to any Certificateholder in the
performance of any such act.
SECTION 7.2. FURNISHING OF DOCUMENTS. The Owner Trustee shall furnish
to the Certificateholders promptly upon receipt of a written request therefor,
duplicates or copies of all reports, notices, requests, demands, certificates,
financial statements and any other instruments furnished to the Owner Trustee
under the Basic Documents.
SECTION 7.3. REPRESENTATIONS AND WARRANTIES. The Owner Trustee hereby
represents and warrants to the Representative, and for the benefit of the
Certificateholders, that:
(a) It is a banking corporation duly organized
and validly existing in good standing under the laws of the State of Delaware
and having an office within the State of Delaware. It has all requisite
corporate power and authority to execute, deliver and perform its obligations
under this Agreement.
(b) It has taken all corporate action necessary
to authorize the execution and delivery by it of this Agreement, and this
Agreement will be executed and delivered by one of its officers who is duly
authorized to execute and deliver this Agreement on its behalf.
(c) Neither the execution nor the delivery by it
of this Agreement, nor the consummation by it of the transactions contemplated
hereby nor compliance by it with any of the terms or provisions hereof will
contravene any federal or Delaware state law, governmental rule or regulation
governing the banking or trust powers of the Owner Trustee or any judgment or
order binding on it, or constitute any default under its charter documents or
by-laws or any indenture, mortgage, contract, agreement or instrument to which
it is a party or by which any of its properties may be bound.
SECTION 7.4. RELIANCE; ADVICE OF COUNSEL. (a) The Owner Trustee shall
incur no liability to anyone in acting upon any signature, instrument, notice,
resolution, request, consent, order, certificate, report, opinion, bond or other
document or paper believed by it to be genuine and believed by it to be signed
by the proper party or parties. The Owner Trustee may accept a certified copy of
a resolution of the board of directors or other governing body of any corporate
party as conclusive evidence that such resolution has been duly adopted by such
body and that the same is in full force and effect. As to any fact or matter the
method of the determination of which is not specifically prescribed herein, the
Owner Trustee may for all purposes hereof rely on a certificate, signed by the
president or any vice president or by the treasurer, secretary or other
authorized officers of the relevant party, as to such fact or matter, and such
certificate shall constitute full protection to the Owner Trustee for any action
taken or omitted to be taken by it in good faith in reliance thereon.
(b) In the exercise or administration of the
trusts hereunder and in the performance of its duties and obligations under this
Agreement or the Basic Documents, the Owner Trustee (i) may act directly or
through its agents or attorneys pursuant to agreements entered into with any of
them, and the Owner Trustee shall not be liable for the conduct or misconduct of
such agents or attorneys if such agents or attorneys shall have been selected by
the Owner Trustee with reasonable care, and (ii) may consult with counsel,
accountants and other skilled persons to be selected with reasonable care and
employed by it. The Owner Trustee shall not be liable for anything done,
suffered or omitted in good faith by it in accordance with the written opinion
or advice of any such counsel, accountants or other such persons and not
contrary to this Agreement or any Basic Document.
SECTION 7.5. NOT ACTING IN INDIVIDUAL CAPACITY. Except as provided in
this Article VII, in accepting the trusts hereby created _______________________
acts solely as Owner Trustee hereunder and not in its individual capacity and
all Persons having any claim against the Owner Trustee by reason of the
transactions contemplated by this Agreement or any Basic Document shall look
only to the Owner Trust Estate for payment or satisfaction thereof.
SECTION 7.6. OWNER TRUSTEE NOT LIABLE FOR TRUST CERTIFICATES OR
MORTGAGE LOANS. The recitals contained herein and in the Trust Certificates
(other than the signature and countersignature of the Owner Trustee on the Trust
Certificates) shall be taken as the statements of the Representative and the
Owner Trustee assumes no responsibility for the correctness thereof. The Owner
Trustee makes no representations as to the validity or sufficiency of this
Agreement, of any Basic Document or of the Trust Certificates (other than the
signature and countersignature of the Owner Trustee on the Trust Certificates)
or the Notes, or of any Mortgage Loan or related documents. The Owner Trustee
shall at no time have any responsibility or liability for or with respect to the
legality, validity and enforceability of any Mortgage Note, or the perfection
and priority of any security interest created by any Mortgage Loan in any
Mortgaged Property or the maintenance of any such perfection and priority, or
for or with respect to the sufficiency of the Owner Trust Estate or its ability
to generate the payments to be distributed to Certificateholders under this
Agreement or the Noteholders under the Indenture, including, without limitation:
the existence, condition and ownership of any Mortgaged Property; the existence
and enforceability of any insurance thereon; the existence and contents of any
Mortgage Loan or any computer or other record thereof; the validity of the
assignment of any Mortgage Loan to the Trust or of any intervening assignment;
the completeness of any Mortgage Loan; the performance or enforcement of any
Mortgage Loan; the compliance by the Representative, or the Servicer with any
warranty or representation made under any Basic Document or in any related
document or the accuracy of any such warranty or representation or any action of
the Trustee or the Servicer or any subservicer taken in the name of the Owner
Trustee.
SECTION 7.7. OWNER TRUSTEE MAY OWN TRUST CERTIFICATES AND NOTES. The
Owner Trustee in its individual or any other capacity may become the owner or
pledgee of Trust Certificates or Notes and may deal with the Representative,
the, the Trustee and the Servicer in banking transactions with the same rights
as it would have if it were not Owner Trustee.
ARTICLE VII.
COMPENSATION OF OWNER TRUSTEE
SECTION 8.1. OWNER TRUSTEE'S FEES AND EXPENSES. The Owner Trustee
shall receive as compensation for its services hereunder such fees as have been
separately agreed upon before the date hereof between the Sponsor and the Owner
Trustee, and the Owner Trustee shall be entitled to be reimbursed by the holder
of the GP Interest for its other reasonable expenses hereunder, including the
reasonable compensation, expenses and disbursements of such agents,
representatives, experts and counsel as the Owner Trustee may employ in
connection with the exercise and performance of its rights and its duties
hereunder.
SECTION 8.2. INDEMNIFICATION. The holder of the GP Interest shall be
liable as primary obligor for, and shall indemnify the Owner Trustee and its
successors, assigns, agents and servants (collectively, the "Indemnified
Parties") from and against, any and all liabilities, obligations, losses,
damages, taxes, claims, actions and suits, and any and all reasonable costs,
expenses and disbursements (including reasonable legal fees and expenses) of any
kind and nature whatsoever (collectively, "Expenses") which may at any time be
imposed on, incurred by, or asserted against the Owner Trustee or any
Indemnified Party in any way relating to or arising out of this Agreement, the
Basic Documents, the Owner Trust Estate, the administration of the Owner Trust
Estate or the action or inaction of the Owner Trustee hereunder, except only
that the holder of the GP Interest shall not be liable for or required to
indemnify the Owner Trustee from and against Expenses arising or resulting from
any of the matters described in the third sentence of Section 7.1. The
indemnities contained in this Section shall survive the resignation or
termination of the Owner Trustee or the termination of this Agreement. In any
event of any claim, action or proceeding for which indemnity will be sought
pursuant to this Section, the Owner Trustee's choice of legal counsel shall be
subject to the approval of the holder of the GP Interest, which approval shall
not be unreasonably withheld.
SECTION 8.3. PAYMENTS TO THE OWNER TRUSTEE. Any amounts paid to the
Owner Trustee pursuant to this Article VIII shall be deemed not to be a part of
the Owner Trust Estate immediately after such payment.
ARTICLE IX.
DISSOLUTION AND TERMINATION OF TRUST
SECTION 9.1. TERMINATION OF TRUST AGREEMENT. (a) The Trust shall
dissolve, (i) upon the final distribution by the Owner Trustee of all moneys or
other property or proceeds of the Owner Trust Estate in accordance with the
terms of the Indenture, the Sale and Servicing Agreement and Article V or (ii)
at the time provided in Section 9.2. The bankruptcy, liquidation, dissolution,
death or incapacity of any Certificateholder or Owner, other than the holder of
the GP Interest as described in Section 9.2, shall not (x) operate to terminate
this Agreement or the Trust, nor (y) entitle such Certificateholder's or Owner's
legal representatives or heirs to claim an accounting or to take any action or
proceeding in any court for a partition or winding up of all or any part of the
Trust or Owner Trust Estate nor (z) otherwise affect the rights, obligations and
liabilities of the parties hereto.
(b) Except as provided in clause (a), neither
the Representative, nor the holder of the GP Interest nor any Certificateholder
shall be entitled to revoke or terminate the Trust.
(c) Notice of any termination of the Trust,
specifying the Remittance Date upon which the Certificateholders shall surrender
their Trust Certificates to the Paying Agent for payment of the final
distribution and cancellation, shall be given by the Owner Trustee by letter to
Certificateholders mailed within five Business Days of receipt of notice of such
termination from the Servicer given pursuant to Section 11.01 of the Sale and
Servicing Agreement, stating (i) the Remittance Date upon or with respect to
which final payment of the Trust Certificates shall be made upon presentation
and surrender of the Trust Certificates at the office of the Paying Agent
therein designated, (ii) the amount of any such final payment and (iii) that the
Record Date otherwise applicable to such Remittance Date is not applicable,
payments being made only upon presentation and surrender of the Trust
Certificates at the office of the Paying Agent therein specified. The Owner
Trustee shall give such notice to the Certificate Registrar (if other than the
Owner Trustee) and the Paying Agent (if other than the Owner Trustee) at the
time such notice is given to Certificateholders. Upon presentation and surrender
of the Trust Certificates, the Paying Agent shall cause to be distributed to
Certificateholders amounts distributable on such Remittance Date pursuant to
Section 5.2.
In the event that all of the Certificateholders shall not
surrender their Trust Certificates for cancellation within six months after the
date specified in the above mentioned written notice, the Owner Trustee shall
give a second written notice to the remaining Certificateholders to surrender
their Trust Certificates for cancellation and receive the final distribution
with respect thereto. If within one year after the second notice all the Trust
Certificates shall not have been surrendered for cancellation, the Owner Trustee
may take appropriate steps, or may appoint an agent to take appropriate steps,
to contact the remaining Certificateholders concerning surrender of their Trust
Certificates, and the cost thereof shall be paid out of the funds and other
assets that shall remain subject to this Agreement. Any funds remaining in the
Trust after exhaustion of such remedies shall be distributed, subject to
applicable escheat laws, by the Owner Trustee to the holder of the GP Interest.
Certificateholders shall thereafter look solely to the holder of the GP Interest
as general unsecured creditors.
(d) Any funds remaining in the Trust after funds
for final distribution have been distributed or set aside for distribution shall
be distributed by the Owner Trustee to the holder of the GP Interest (other than
any amounts remaining in the Reserve Account which shall be distributed to the
Representative).
(e) Upon dissolution and completion of the
winding up of the Trust, the Owner Trustee shall cause the Certificate of Trust
to be canceled by filing a certificate of cancellation with the Secretary of
State in accordance with the provisions of Section 3810 of the Business Trust
Statute and thereupon the Trust and this Agreement shall terminate. The Owner
Trustee shall furnish notice of such dissolution to each Rating Agency.
SECTION 9.2. DISSOLUTION UPON BANKRUPTCY OF THE HOLDER OF THE GP
INTEREST. In the event that an Insolvency Event shall occur with respect to the
holder of the GP Interest, the Trust shall dissolve and this Agreement shall be
terminated in accordance with Section 9.1 90 days after the date of such
Insolvency Event, unless, before the end of such 90-day period, the Owner
Trustee shall have received written instructions from Certificateholders holding
a majority of the Certificate Balance (other than the holder of the GP Interest)
to the effect that each such party disapproves of the liquidation of the
Mortgage Loans and dissolution of the Trust. Promptly after the occurrence of
any Insolvency Event with respect to the holder of the GP Interest, (i) the
holder of the GP Interest shall give the Trustee and the Owner Trustee written
notice of such Insolvency Event, (ii) the Owner Trustee shall, upon the receipt
of such written notice from the holder of the GP Interest, give prompt written
notice to the Certificateholders and the Trustee of the occurrence of such event
and (iii) the Trustee shall, upon receipt of written notice of such Insolvency
Event from the Owner Trustee or the holder of the GP Interest, give prompt
written notice to the Noteholders of the occurrence of such event; PROVIDED,
HOWEVER, that any failure to give a notice required by this sentence shall not
prevent or delay, in any manner, a termination of the Trust pursuant to the
first sentence of this Section 9.2. Upon a termination pursuant to this Section,
the Owner Trustee on behalf of the Trust shall direct the Trustee promptly to
sell the assets of the Owner Trust Estate in a commercially reasonable manner
and on commercially reasonable terms. The proceeds of such a sale of the assets
of the Trust shall be treated as collections under the Sale and Servicing
Agreement and shall be distributed in accordance with Section 9.1(b) thereof.
ARTICLE X.
SUCCESSOR OWNER TRUSTEES AND ADDITIONAL OWNER TRUSTEES
SECTION 10.1. ELIGIBILITY REQUIREMENTS FOR OWNER TRUSTEE. The Owner
Trustee shall at all times be a corporation authorized to exercise corporate
trust powers; and having a combined capital and surplus of at least $50,000,000
and subject to supervision or examination by Federal or state authorities;
PROVIDED that with respect to the Owners Trustee (but not any successor trustee)
the combined capital and surplus of the parent organization of such banking
corporation shall be included in the determination of the combined capital and
surplus of such banking corporation. If such corporation shall publish reports
of condition at least annually, pursuant to law or to the requirements of the
aforesaid supervising or examining authority, then for the purpose of this
Section, the combined capital and surplus of such corporation shall be deemed to
be its combined capital and surplus as set forth in its most recent report of
condition so published. In case at any time the Owner Trustee shall cease to be
eligible in accordance with the provisions of this Section, the Owner Trustee
shall resign immediately in the manner and with the effect specified in Section
10.2. In addition, at all times the Owner Trustee or a co-trustee shall be a
person that satisfies the requirements of Section 3807(a) of the Business Trust
Statute (the "Delaware Trustee").
SECTION 10.2. RESIGNATION OR REMOVAL OF OWNER TRUSTEE. The Owner
Trustee may at any time resign and be discharged from the trusts hereby created
by giving written notice thereof to the Servicer. Upon receiving such notice of
resignation, the Servicer shall promptly appoint a successor Owner Trustee by
written instrument, in duplicate, one copy of which instrument shall be
delivered to the resigning Owner Trustee and one copy to the successor Owner
Trustee. If no successor Owner Trustee shall have been so appointed and have
accepted appointment within 30 days after the giving of such notice of
resignation, the resigning Owner Trustee may petition any court of competent
jurisdiction for the appointment of a successor Owner Trustee.
If at any time the Owner Trustee shall cease to be eligible in
accordance with the provisions of Section 10.1 and shall fail to resign after
written request therefor by the Servicer, or if at any time the Owner Trustee
shall be legally unable to act, or shall be adjudged bankrupt or insolvent, or a
receiver of the Owner Trustee or of its property shall be appointed, or any
public officer shall take charge or control of the Owner Trustee or of its
property or affairs for the purpose of rehabilitation, conservation or
liquidation, then the Servicer may remove the Owner Trustee. If the Servicer
shall remove the Owner Trustee under the authority of the immediately preceding
sentence, the Servicer shall promptly appoint a successor Owner Trustee by
written instrument, in duplicate, one copy of which instrument shall be
delivered to the outgoing Owner Trustee so removed and one copy to the successor
Owner Trustee and payment of all fees owed to the outgoing Owner Trustee.
Any resignation or removal of the Owner Trustee and appointment of a
successor Owner Trustee pursuant to any of the provisions of this Section shall
not become effective until acceptance of appointment by the successor Owner
Trustee pursuant to Section 10.3 and payment of all fees and expenses owed to
the outgoing Owner Trustee. The Servicer shall provide notice of such
resignation or removal of the Owner Trustee to each of the Rating Agencies.
SECTION 10.3. SUCCESSOR OWNER TRUSTEE. Any successor Owner Trustee
appointed pursuant to Section 10.2 shall execute, acknowledge and deliver to the
Servicer and to its predecessor Owner Trustee an instrument accepting such
appointment under this Agreement, and thereupon the resignation or removal of
the predecessor Owner Trustee shall become effective and such successor Owner
Trustee, without any further act, deed or conveyance, shall become fully vested
with all the rights, powers, duties and obligations of its predecessor under
this Agreement, with like effect as if originally named as Owner Trustee. The
predecessor Owner Trustee shall upon payment of its fees and expenses deliver to
the successor Owner Trustee all documents and statements and monies held by it
under this Agreement; and the Servicer and the predecessor Owner Trustee shall
execute and deliver such instruments and do such other things as may reasonably
be required for fully and certainly vesting and confirming in the successor
Owner Trustee all such rights, powers, duties and obligations.
No successor Owner Trustee shall accept appointment as provided in
this Section unless at the time of such acceptance such successor Owner Trustee
shall be eligible pursuant to Section 10.1.
Upon acceptance of appointment by a successor Owner Trustee pursuant
to this Section, the Servicer shall mail notice of the successor of such Owner
Trustee to all Certificateholders, the Trustee, the Noteholders and the Rating
Agencies. If the Servicer shall fail to mail such notice within 10 days after
acceptance of appointment by the successor Owner Trustee, the successor Owner
Trustee shall cause such notice to be mailed at the expense of the Servicer.
SECTION 10.4. MERGER OR CONSOLIDATION OF OWNER TRUSTEE. Any
corporation into which the Owner Trustee may be merged or converted or with
which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Owner Trustee shall be a party, or any
corporation succeeding to all or substantially all of the corporate trust
business of the Owner Trustee, shall be the successor of the Owner Trustee
hereunder, provided such corporation shall be eligible pursuant to Section 10.1,
without the execution or filing of any instrument or any further act on the part
of any of the parties hereto, anything herein to the contrary notwithstanding;
provided further that the Owner Trustee shall mail notice of such merger, sale,
conversion or consolidation to the Rating Agencies.
SECTION 10.5. APPOINTMENT OF CO-TRUSTEE OR SEPARATE TRUSTEE.
Notwithstanding any other provisions of this Agreement, at any time, for the
purpose of meeting any legal requirements of any jurisdiction in which any part
of the Owner Trust Estate or any Mortgaged Property may at the time be located,
the Servicer and the Owner Trustee acting jointly shall have the power and shall
execute and deliver all instruments to appoint one or more Persons approved by
the Owner Trustee to act as co-trustee, jointly with the Owner Trustee, or
separate trustee or separate trustees, of all or any part of the Owner Trust
Estate, and to vest in such Person, in such capacity, such title to the Owner
Trust Estate, or any part thereof, and, subject to the other provisions of this
Section, such powers, duties, obligations, rights and trusts as the Servicer and
the Owner Trustee may consider necessary or desirable. If the Servicer shall not
have joined in such appointment within 15 days after the receipt by it of a
request so to do, the Owner Trustee alone shall have the power to make such
appointment. No co-trustee or separate trustee under this Agreement shall be
required to meet the terms of eligibility as a successor trustee pursuant to
Section 10.1 and no notice of the appointment of any co-trustee or separate
trustee shall be required pursuant to Section 10.3.
Each separate trustee and co-trustee shall, to the extent permitted by
law, be appointed and act subject to the following provisions and conditions:
(i) all rights, powers, duties and obligations
conferred or imposed upon the Owner Trustee shall be
conferred upon and exercised or performed by the Owner
Trustee and such separate trustee or co-trustee jointly (it
being understood that such separate trustee or co-trustee is
not authorized to act separately without the Owner Trustee
joining in such act), except to the extent that under any law
of any jurisdiction in which any particular act or acts are
to be performed, the Owner Trustee shall be incompetent or
unqualified to perform such act or acts, in which event such
rights, powers, duties and obligations (including the holding
of title to the Owner Trust Estate or any portion thereof in
any such jurisdiction) shall be exercised and performed
singly by such separate trustee or co-trustee, but solely at
the direction of the Owner Trustee;
(ii) no trustee under this Agreement shall be
personally liable by reason of any act or omission of any
other trustee under this Agreement; and
(iii) the Servicer and the Owner Trustee acting
jointly may at any time accept the resignation of or remove
any separate trustee or co-trustee.
Any notice, request or other writing given to the Owner Trustee shall
be deemed to have been given to each of the then separate trustees and
co-trustees, as effectively as if given to each of them. Every instrument
appointing any separate trustee or co-trustee shall refer to this Agreement and
the conditions of this Article. Each separate trustee and co-trustee, upon its
acceptance of the trusts conferred, shall be vested with the estates or property
specified in its instrument of appointment, either jointly with the Owner
Trustee or separately, as may be provided therein, subject to all the provisions
of this Agreement, specifically including every provision of this Agreement
relating to the conduct of, affecting the liability of, or affording protection
to, the Owner Trustee. Each such instrument shall be filed with the Owner
Trustee and a copy thereof given to the Servicer.
Any separate trustee or co-trustee may at any time appoint the Owner
Trustee, its agent or attorney-in-fact with full power and authority, to the
extent not prohibited by law, to do any lawful act under or in respect of this
Agreement on its behalf and in its name. If any separate trustee or co-trustee
shall die, become incapable of acting, resign or be removed, all of its estates,
properties, rights, remedies and trusts shall vest in and be exercised by the
Owner Trustee, to the extent permitted by law, without the appointment of a new
or successor trustee.
ARTICLE XI.
MISCELLANEOUS
SECTION 11.1. SUPPLEMENTS AND AMENDMENTS. (a) This Agreement may be
amended by the Representative and the Owner Trustee, with prior written notice
to the Rating Agencies, without the consent of any of the Noteholders or the
Certificateholders, to cure any ambiguity or defect, to correct or supplement
any provisions in this Agreement or for the purpose of adding any provisions to
or changing in any manner or eliminating any of the provisions in this Agreement
or of modifying in any manner the rights of the Noteholders or the
Certificateholders; PROVIDED, HOWEVER, that such action shall not, as evidenced
by an Opinion of Counsel, adversely affect in any material respect the interests
of any Noteholder or Certificateholder; PROVIDED, FURTHER, that any amendment
within the scope of Section 11.1(b)(i) or (ii) shall be deemed to materially and
adversely affect the interests of the Noteholders or the Certificateholders, as
evidenced by an Officer's Certificate of the Servicer delivered to the Owner
Trustee.
(b) This Agreement may also be amended from time
to time by the Representative and the Owner Trustee, with prior written notice
to the Rating Agencies, with the consent of the Holders of Notes evidencing not
less than a majority of the Outstanding Amount of the Notes and, to the extent
affected thereby, the consent of the Holders of Certificates evidencing not less
than a majority of the Certificate Balance for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
this Agreement or of modifying in any manner the rights of the Noteholders or
the Certificateholders; PROVIDED, HOWEVER, that no such amendment shall (i)
increase or reduce in any manner the amount of, or accelerate or delay the
timing of, collections of payments on Mortgage Loans or distributions that shall
be required to be made for the benefit of the Noteholders or the
Certificateholders or (ii) reduce the aforesaid percentage of the Outstanding
Amount of the Notes and the Certificate Balance required to consent to any such
amendment, without the consent of the Holders of all the outstanding Notes and
Holders of all outstanding Certificates. Promptly after the execution of any
such amendment or consent, the Owner Trustee shall furnish written notification
of the substance of such amendment or consent to each Certificateholder, the
Trustee and each of the Rating Agencies.
(c) It shall not be necessary for the consent of
Certificateholders, the Noteholders or the Trustee pursuant to this Section to
approve the particular form of any proposed amendment or consent, but it shall
be sufficient if such consent shall approve the substance thereof. The manner of
obtaining such consents (and any other consents of Certificateholders provided
for in this Agreement or in any other Basic Document) and of evidencing the
authorization of the execution thereof by Certificateholders shall be subject to
such reasonable requirements as the Owner Trustee may prescribe.
(d) Promptly after the execution of any
amendment to the Certificate of Trust, the Owner Trustee shall cause the filing
of such amendment with the Secretary of State.
(e) Prior to the execution of any amendment to
this Agreement or the Certificate of Trust, the Owner Trustee shall be entitled
to receive and rely upon an Opinion of Counsel stating that the execution of
such amendment is authorized or permitted by this Agreement and that all
conditions precedent to the execution and delivery of such amendment have been
satisfied. The Owner Trustee may, but shall not be obligated to, enter into any
such amendment which affects the Owner Trustee's own rights, duties or
immunities under this Agreement or otherwise. The Owner Trustee shall furnish
copies of any such amendments to this Agreement to each Rating Agency.
SECTION 11.2. NO LEGAL TITLE TO OWNER TRUST ESTATE IN
CERTIFICATEHOLDERS. The Certificateholders shall not have legal title to any
part of the Owner Trust Estate. The Certificateholders shall be entitled to
receive distributions with respect to their undivided beneficial ownership
interest therein only in accordance with Articles V and IX. No transfer, by
operation of law or otherwise, of any right, title or interest of the
Certificateholders to and in their ownership interest in the Owner Trust Estate
shall operate to terminate this Agreement or the trusts hereunder or entitle any
transferee to an accounting or to the transfer to it of legal title to any part
of the Owner Trust Estate.
SECTION 11.3. LIMITATIONS ON RIGHTS OF OTHERS. Except for Section 2.7,
the provisions of this Agreement are solely for the benefit of the Owner
Trustee, the Representative, the Certificateholders, the Servicer and, to the
extent expressly provided herein, the Trustee and the Noteholders, and nothing
in this Agreement, whether express or implied, shall be construed to give to any
other Person any legal or equitable right, remedy or claim in the Owner Trust
Estate or under or in respect of this Agreement or any covenants, conditions or
provisions contained herein.
SECTION 11.4. NOTICES. Unless otherwise expressly specified or
permitted by the terms hereof, all notices shall be in writing and shall be
deemed given upon receipt personally delivered, delivered by overnight courier
or mailed certified mail, return receipt requested and shall be deemed to have
been duly given upon receipt, if to the Owner Trustee, addressed to the
Corporate Trust Office; if to the Representative or the holder of the GP
Interest, addressed to ________________________, Attention: ________; or, as to
each party, at such other address as shall be designated by such party in a
written notice to each other party.
(a) Any notice required or permitted to be given
to a Certificateholder shall be given by first-class mail, postage prepaid, at
the address of such Holder as shown in the Certificate Register. Any notice so
mailed within the time prescribed in this Agreement shall be conclusively
presumed to have been duly given, whether or not the Certificateholder receives
such notice.
SECTION 11.5. SEVERABILITY. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
SECTION 11.6. SEPARATE COUNTERPARTS. This Agreement may be executed by
the parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute but one and the same instrument.
SECTION 11.7. SUCCESSORS AND ASSIGNS. All covenants and agreements
contained herein shall be binding upon, and inure to the benefit of, the
Representative, the holder of the GP Interest, the Owner Trustee and its
successors and each Certificateholder and its successors and permitted assigns,
all as herein provided. Any request, notice, direction, consent, waiver or other
instrument or action by a Certificateholder shall bind the successors and
assigns of such Certificateholder.
SECTION 11.8. [Reserved]
SECTION 11.9. NO PETITION. The Owner Trustee (not in its individual
capacity but solely as Owner Trustee), by entering into this Agreement, each
Certificateholder, by accepting a Trust Certificate, and the Trustee and each
Noteholder by accepting the benefits of this Agreement, hereby covenants and
agrees that they will not at any time institute against the holder of the GP
Interest, or join in any institution against the holder of the GP Interest of,
any bankruptcy, reorganization, arrangement, insolvency or liquidation
proceedings, or other proceedings under any United States Federal or state
bankruptcy or similar law in connection with any obligations relating to the
Trust Certificates, the Notes, this Agreement or any of the Basic Documents.
SECTION 11.10. NO RECOURSE. Each Certificateholder by accepting a
Trust Certificate acknowledges that such Certificateholder's Trust Certificates
represent beneficial ownership interests in the Trust only and do not represent
interests in or obligations of the Representative, the Originators, the
Servicer, the holder of the GP Interest, the Owner Trustee, the Trustee or any
Affiliate thereof and no recourse by such Certificateholder may be had against
such parties or their assets, except as may be expressly set forth or
contemplated in this Agreement, the Trust Certificates or the Basic Documents.
SECTION 11.11. HEADINGS. The headings of the various Articles and
Sections herein are for convenience of reference only and shall not define or
limit any of the terms or provisions hereof.
SECTION 11.12. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT
REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND
REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH
LAWS.
SECTION 11.13. [RESERVED]
SECTION 11.14. SERVICER. The Servicer is authorized to execute on
behalf of the Trust all such documents, reports, filings, tax returns,
instruments, certificates and opinions as it shall be the duty of the Trust to
prepare, file or deliver pursuant to the Basic Documents. Upon written request,
the Owner Trustee on behalf of the Trust shall execute and deliver to the
Servicer a power of attorney appointing the Servicer the Trust's agent and
attorney-in-fact to execute all such documents, reports, filings, tax returns,
instruments, certificates and opinions.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Trust
Agreement to be duly executed by their respective officers hereunto duly
authorized as of the day and year first above written.
-----------------------,
as Owner Trustee
By:____________________
Name:
Title:
THE MONEY STORE, as Representative
By: ____________________
Name:
Title:
[Holder of the GP Interest]
By: ____________________
Name:
Title:
<PAGE>
EXHIBIT A
NUMBER $
R- CUSIP NO.
- -----------
SEE REVERSE FOR CERTAIN DEFINITIONS
NO INTEREST IN THIS TRUST CERTIFICATE MAY BE ACQUIRED BY OR
FOR THE ACCOUNT OF (i) AN "EMPLOYEE BENEFIT PLAN" (AS DEFINED IN SECTION 3(3) OF
THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED, ("ERISA")) THAT
IS SUBJECT TO THE PROVISIONS OF TITLE I OF ERISA, (ii) A PLAN DESCRIBED IN
SECTION 4975(e)(1) OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (INCLUDING,
WITHOUT LIMITATION, INDIVIDUAL RETIREMENT ACCOUNTS AND KEOGH PLANS), OR (iii)
ANY ENTITY WHOSE UNDERLYING ASSETS INCLUDE PLAN ASSETS BY REASON OF A PLAN'S
INVESTMENT IN THE ENTITY. BY ACCEPTING AND HOLDING THIS CERTIFICATE, THE HOLDER
HEREOF AND THE CERTIFICATE OWNER SHALL EACH BE DEEMED TO HAVE REPRESENTED AND
WARRANTED THAT IT IS NOT A BENEFIT PLAN.
[UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER
OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY
CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME
AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE
TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.]
THE PRINCIPAL OF THIS TRUST CERTIFICATE IS DISTRIBUTABLE IN
INSTALLMENTS AS SET FORTH IN THE TRUST AGREEMENT. ACCORDINGLY, THE OUTSTANDING
PRINCIPAL OF THIS TRUST CERTIFICATE AT ANY TIME MAY BE LESS THAN THE AMOUNT
SHOWN ON THE FACE HEREOF.
[THIS CERTIFICATE IS NOT TRANSFERABLE]1
- ----------
1 To be inserted on the Certificate to be held by the holder of the GP Interest.
<PAGE>
THE MONEY STORE TRUST 199_-_
____% ASSET BACKED CERTIFICATE
evidencing a beneficial ownership interest in certain distributions of the
Trust, as defined below, the property of which includes a pool of ________
mortgage loans and sold to the Trust by the Originators.
(THIS TRUST CERTIFICATE DOES NOT REPRESENT AN INTEREST IN OR OBLIGATION OF THE
MONEY STORE INC. OR ANY OF ITS AFFILIATES, EXCEPT TO THE EXTENT DESCRIBED
BELOW.)
THIS CERTIFIES THAT is the registered owner of
_________________ DOLLARS nonassessable, fully-paid, beneficial ownership
interest in The Money Store Trust 1997-_ (the "Trust") formed by the entities
listed on Annex I attached to the Trust Agreement (each an "Originator"). The
Trust Certificates have a Certificate Rate of ___% per annum.
The Trust was created pursuant to that certain Trust Agreement
dated as of ______ __, 199_ (the "Trust Agreement") between The Money Store
Inc., as Representative (the "Representative"), and _______________________, not
in its individual capacity but solely as owner trustee (the "Owner Trustee"), a
summary of certain of the pertinent provisions of which is set forth below. To
the extent not otherwise defined herein, the capitalized terms used herein have
the meanings assigned to them in the Trust Agreement.
This Certificate is one of the duly authorized Trust
Certificates designated as "___% Asset Backed Certificates" (herein called the
"Trust Certificates"). [Also issued under the Indenture dated as of ______ __,
1997, between the Trust and [The Bank of New York,] as trustee, are Notes
designated as "___% Asset Backed Notes" (the "Notes").] This Trust Certificate
is issued under and is subject to the terms, provisions and conditions of the
Trust Agreement, to which Trust Agreement the holder of this Trust Certificate
by virtue of the acceptance hereof assents and by which such holder is bound.
The property of the Trust includes a pool of ____________ mortgage loans, (the
"Mortgage Loans"), all monies received on the Mortgage Loans on or after ______
__, 1997, security interests in certain bank accounts and the proceeds thereof,
proceeds from claims on certain insurance policies and certain other rights
under the Trust Agreement and the Sale and Servicing Agreement.
Under the Trust Agreement, there will be distributed on the
___ day of each month or, if such ___ day is not a Business Day, the next
Business Day (the "Remittance Date"), commencing in __________, 199_, to the
Person in whose name this Trust Certificate is registered at the close of
business on the day immediately preceding the Remittance Date (the "Record
Date") such Certificateholder's fractional undivided interest in the amount to
be distributed to Certificateholders on such Remittance Date; [PROVIDED,
HOWEVER, that principal will be distributed to the Certificateholders on (to the
extent of funds remaining after the Notes have been paid in full) and after the
date on which the Notes have been paid in full].
The holder of this Trust Certificate acknowledges and agrees
that its rights to receive distributions in respect of this Trust Certificate
are subordinated to the rights of the Noteholders as described in the Sale and
Servicing Agreement, the Indenture and the Trust Agreement, as applicable.
It is the intent of the Representative, Servicer, holder of
the GP Interest and Certificateholders that, for purposes of Federal income
taxes, the Trust will be treated as a partnership and the Certificateholders
(including the holder of the GP Interest) will be treated as partners in that
partnership. The holder of the GP Interest and the other Certificateholders by
acceptance of a Trust Certificate, agree to treat, and to take no action
inconsistent with the treatment of, the Trust Certificates for such tax purposes
as partnership interests in the Trust.
Each Certificateholder, by its acceptance of a Trust
Certificate, covenants and agrees that such Certificateholder will not at any
time institute against the Trust or the holder of the GP Interest, or join in
any institution against the Trust or the holder of the GP Interest of, any
bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings,
or other proceedings under any United States Federal or state bankruptcy or
similar law in connection with any obligations relating to the Trust
Certificates, the Notes, the Trust Agreement or any of the Basic Documents.
Distributions on this Trust Certificate will be made as
provided in the Trust Agreement by the Owner Trustee by wire transfer or check
mailed to the Certificateholder of record in the Trust Certificate Register
without the presentation or surrender of this Trust Certificate or the making of
any notation hereon, except that with respect to Trust Certificates registered
on the Record Date in the name of the nominee of the Clearing Agency (initially,
such nominee to be Cede & Co.), payments will be made by wire transfer in
immediately available funds to the account designated by such nominee. Except as
otherwise provided in the Trust Agreement and notwithstanding the above, the
final distribution on this Trust Certificate will be made after due notice by
the Owner Trustee of the pendency of such distribution and only upon
presentation and surrender of this Trust Certificate at the office or agency
maintained for the purpose by the Owner Trustee in the Borough of Manhattan,
City of New York.
Reference is hereby made to the further provisions of this
Trust Certificate set forth on the reverse hereof, which further provisions
shall for all purposes have the same effect as if set forth at this place.
Unless the certificate of authentication hereon shall have
been executed by an authorized officer of the Owner Trustee, by manual
signature, this Trust Certificate shall not entitle the holder hereof to any
benefit under the Trust Agreement or the Sale and Servicing Agreement or be
valid for any purpose.
THIS TRUST CERTIFICATE SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
<PAGE>
IN WITNESS WHEREOF, the Owner Trustee, on behalf of the Trust
and not in its individual capacity, has caused this Trust Certificate to be duly
executed.
Date:
THE MONEY STORE TRUST 199_-_
By: _______________________,
solely as Owner Trustee and not in its
individual capacity
By: ________________________
Authorized Signatory
OWNER TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Trust Certificates referred to in the
within-mentioned Trust Agreement.
Date:
-----------------------,
solely as Owner Trustee and not in its
individual capacity
By:___________________________
Authorized Signatory
<PAGE>
(Reverse of Trust Certificate)
The Trust Certificates do not represent an obligation of, or
an interest in, the Representative, the Originators, the Servicer, the holder of
the GP Interest, the Owner Trustee or any Affiliates of any of them and no
recourse may be had against such parties or their assets, except as may be
expressly set forth or contemplated herein or in the Trust Agreement, the
Indenture or the Basic Documents. In addition, this Trust Certificate is not
guaranteed by any governmental agency or instrumentality and is limited in right
of payment to certain collections with respect to the Mortgage Loans (and
certain other amounts), all as more specifically set forth herein and in the
Sale and Servicing Agreement. The Trust Certificates are limited in right of
payment to certain collections and recoveries respecting the Mortgage Loans, all
as more specifically set forth in the Sale and Servicing Agreement. A copy of
each of the Sale and Servicing Agreement and the Trust Agreement may be examined
during normal business hours at the principal office of the Representative, and
at such other places, if any, designated by the Representative, by any
Certificateholder upon written request.
The Trust Agreement permits, with certain exceptions therein
provided, the amendment thereof and the modification of the rights and
obligations of the Representative, and the rights of the Certificateholders
under the Trust Agreement at any time by the Representative and the Owner
Trustee with the consent of the holders of the Notes and the Trust Certificates
evidencing not less than a majority of the outstanding principal balance of the
Notes and the Certificate Balance. Any such consent by the holder of this Trust
Certificate shall be conclusive and binding on such holder and on all future
holders of this Trust Certificate and of any Trust Certificate issued upon the
transfer hereof or in exchange hereof or in lieu hereof whether or not notation
of such consent is made upon this Trust Certificate. The Trust Agreement also
permits the amendment thereof, in certain limited circumstances, without the
consent of the holders of any of the Trust Certificates.
As provided in the Trust Agreement and subject to certain
limitations therein set forth, the transfer of this Trust Certificate is
registerable in the Certificate Register upon surrender of this Trust
Certificate for registration of transfer at the offices or agencies of the
Certificate Registrar maintained by the Owner Trustee in the Borough of
Manhattan, The City of New York, accompanied by a written instrument of transfer
in form satisfactory to the Owner Trustee and the Certificate Registrar duly
executed by the holder hereof or such holder's attorney duly authorized in
writing, and thereupon one or more new Trust Certificates in authorized
denominations evidencing the same aggregate interest in the Trust will be issued
to the designated transferee. The initial Certificate Registrar appointed under
the Trust Agreement is the Owner Trustee.
Except for Trust Certificates issued to the Representative
and transferred to the holder of the GP Interest (if an entity other than the
Representative), the Trust Certificates are issuable only as registered Trust
Certificates without coupons in denominations of $1,000 or integral multiples of
$1,000 in excess thereof; except as otherwise provided in the Trust Agreement.
As provided in the Trust Agreement and subject to certain limitations therein
set forth, Trust Certificates are exchangeable for new Trust Certificates in
authorized denominations evidencing the same aggregate denomination, as
requested by the holder surrendering the same. No service charge will be made
for any such registration of transfer or exchange, but the Owner Trustee or the
Certificate Registrar may require payment of a sum sufficient to cover any tax
or governmental charge payable in connection therewith.
The Owner Trustee, the Certificate Registrar and any agent of
the Owner Trustee or the Certificate Registrar may treat the person in whose
name this Trust Certificate is registered as the owner hereof for all purposes,
and none of the Owner Trustee, the Certificate Registrar or any such agent shall
be affected by any notice to the contrary.
The obligations and responsibilities created by the Trust
Agreement and the Trust created thereby shall terminate upon the payment to
Certificateholders of all amounts required to be paid to them pursuant to the
Trust Agreement and the Sale and Servicing Agreement and the disposition of all
property held as part of the Owner Trust Estate. The Representative may at its
option purchase the corpus of the Trust at a price specified in the Sale and
Servicing Agreement, and such purchase of the Mortgage Loans and other property
of the Trust will effect early retirement of the Trust Certificates; however,
such right of purchase is exercisable, subject to certain restrictions, only as
of the last day of any Due Period as of which the Pool Balance is [10%] or less
of the Initial Pool Balance. [In addition, within ten days following a
Remittance Date as of which the Pool Balance is 5% or less of the Initial Pool
Balance, and if the Representative shall have not exercised its option to
repurchase the Mortgage Loan an auction sale shall be conducted (as described in
the Sale and Servicing Agreement) and such auction shall effect early retirement
of the Certificates.]
The Trust Certificates may not be acquired by (a) an employee
benefit plan (as defined in Section 3(3) of ERISA) that is subject to the
provisions of Title 1 of ERISA, (b) a plan described in Section 4975(e) (l) of
the Code or (c) any entity whose underlying assets include plan assets by reason
of a plan's investment in the entity, as well as any entity whose underlying
assets include plan assets by reason of a plan or arrangement investing in such
entity (including an insurance company general account) (each, a "Benefit
Plan"). By accepting and holding this Trust Certificate, the Holder hereof shall
be deemed to have represented and warranted that it is not a Benefit Plan.
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED the undersigned hereby sells, assigns and
transfers unto
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
OF ASSIGNEE
(Please print or type name and address, including postal zip
code, of assignee)
the within Trust Certificate, and all rights thereunder, hereby
irrevocably constituting and appointing
_______________________________________________ Attorney to transfer said Trust
Certificate on the books of the Trust Certificate Registrar, with full power of
substitution in the premises.
Dated:
*
Signature Guaranteed:
*
- --------------------------
*NOTICE: The signature to this assignment must correspond with the name of the
registered owner as it appears on the face of the within Trust Certificate in
every particular, without alteration, enlargement or any change whatever. Such
signature must be guaranteed by an "eligible guarantor institution" meeting the
requirements of the Certificate Registrar, which requirements include membership
or participation in STAMP or such other "signature guarantee program" as may be
determined by the Certificate Registrar in addition to, or in substitution for,
STAMP, all in accordance with the Securities Exchange Act of 1934, as amended.
<PAGE>
EXHIBIT B
[FORM OF]
CERTIFICATE OF TRUST OF
THE MONEY STORE TRUST 1997-_
THIS Certificate of Trust of The Money Store Trust 1997-_ (the
"Trust"), is being duly executed and filed by _______________________, a
Delaware banking corporation, as trustee, to form a business trust under the
Delaware Business Trust Act (12 DEL. CODE, ss. 3801 ET SEQ.).
1. NAME. The name of the business trust formed
hereby is THE MONEY STORE TRUST 1997-_.
2. DELAWARE TRUSTEE. The name and business address
of the trustee of the Trust in the State of Delaware is
_______________________, , ,
Delaware _________, Attention: _____________________________.
IN WITNESS WHEREOF, the undersigned, being the sole trustee of
the Trust, has executed this Certificate of Trust.
-----------------------,
not in its individual capacity but
solely as owner trustee of the Trust.
By:________________________________
Name:
Title:
<PAGE>
ANNEX I
LIST OF ORIGINATORS
EXHIBIT 5.1
Stroock & Stroock & Lavan LLP
189 Maiden Lane
New York, New York 10038
September 9, 1997
The Money Store Inc.
2840 Morris Avenue
Union, New Jersey
Re: THE MONEY STORE INC. - REGISTRATION STATEMENT ON FORM S-3 (NO. 333-32775)
Gentlemen:
We have acted as special counsel to The Money Store Inc., a New Jersey
corporation (the "Company"), and certain of its subsidiaries (the
"Originators"), in connection with the preparation of the registration statement
on Form S-3 (No. 333- 32775) (the "Registration Statement") relating to the
proposed offering from time to time in one or more series (each, a "Series") by
one or more trusts of TMS Asset Backed Notes (the "Notes"), TMS Asset Backed
Certificates (the "Certificates," and, together with the Notes, the
"Securities") and the Guaranty of the Company referred to below. The
Registration Statement has been filed with the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended (the
"Act"). As set forth in the Registration Statement, each Series of Securities is
to be issued under and pursuant to the terms of a separate pooling and servicing
agreement, or sale and servicing agreement, trust agreement, and indenture
(each, an "Agreement") between the Company, one or more of the Originators and
an independent trustee (the "Trustee") to be identified in the Prospectus
Supplement for each Series of Securities. In addition, as set forth in the
Registration Statement, certain classes of Securities may be entitled to the
benefits of a Guaranty (the "Guaranty") to be provided by the Company.
As such counsel, we have examined copies of the Certificate of Incorporation and
By-Laws of the Company, the Registration Statement, each base Prospectus and a
form of each Prospectus Supplement included therein, the form of each Agreement,
and originals or copies of such other corporate minutes, records, agreements and
other instruments of the Company, certificates of public officials and other
documents and have made such examinations of law, as we have deemed necessary to
form the basis for the opinions hereinafter expressed. In our examination of
such materials, we have assumed the genuineness of all signatures, the
authenticity of all documents submitted to us as originals and the conformity to
original documents of all copies submitted to us. As to various questions of
fact material to such opinions, we have relied, to the extent we deemed
appropriate, upon representations, statements and certificates of officers and
representatives of the Company and others.
Attorneys involved in the preparation of this opinion are admitted to practice
law in the State of New York and we do not express any opinion herein concerning
any law other than the federal laws of the United States of America and the laws
of the State of New York.
Based upon and subject to the foregoing, we are of the opinion that:
1. When the issuance, execution and delivery of each Series of Notes have
been authorized by all necessary corporate action of the Company and the
Originators in accordance with the provisions of the related Agreement or
Agreements, and when such Notes have been duly executed and delivered,
authenticated by the Trustee and sold as described in the Registration
Statement, assuming that the terms of such Notes are otherwise in compliance
with applicable law at such time, such Notes will constitute valid and binding
obligations of the issuer thereof in accordance with their terms and the terms
of such Agreement or Agreements. This opinion is subject to the effect of
bankruptcy, insolvency, moratorium, fraudulent conveyance and similar laws
relating to or affecting creditors' rights generally and court decisions with
respect thereto and we express no opinion with respect to the application of
equitable principles or remedies in any proceeding, whether at law or in equity.
2. When the issuance, execution and delivery of each Series of Certificates
have been authorized by all necessary corporate action of the Company and the
Originators in accordance with the provisions of the related Agreement or
Agreements, and when such Certificates have been duly executed and delivered,
authenticated by the Trustee and sold as described in the Registration
Statement, assuming that the terms of such Certificates are otherwise in
compliance with applicable law at such time, such Certificates will be legally
issued, fully paid and non-assessable and entitled to the benefits of the
related Agreement.
3. When a Guaranty has been duly and validly authorized by all necessary
action on the part of the Company (subject to the terms thereof being otherwise
in compliance with applicable law at such time) and when sold as described in
the Registration Statement, such Guaranty will constitute valid and binding
obligations of the Company enforceable in accordance with its terms.
4. The information in each Prospectus under the caption "Federal Income Tax
Consequences," and in the second form of Prospectus Supplement contained as part
of the Registration Statement under the caption "Risk Factors -- Federal Income
Tax Considerations," to the extent that it constitutes matters of law or legal
conclusions, sets forth our opinion with respect to the material Federal income
tax consequences of an investment in the Securities.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement, to the references to this firm in each Prospectus and
each related Prospectus Supplement which forms a part of the Registration
Statement and to the filing of this opinion as an exhibit to any application
made by or on behalf of the Company or any dealer in connection with the
registration of the Securities under the securities or blue sky laws of any
state or jurisdiction. In giving such consent, we do not admit hereby that we
come within the category of persons whose consent is required under Section 7 of
the Act or the Rules and Regulations of the Commission thereunder.
Very truly yours,
/s/ Stroock & Stroock & Lavan LLP
STROOCK & STROOCK & LAVAN LLP
Exhibit 10.1
SALE AND SERVICING
AGREEMENT
among
THE MONEY STORE TRUST 199_-___
Issuer,
THE ORIGINATORS LISTED HEREIN
Originators
and
THE MONEY STORE INC.
Representative, Servicer and Claims Administrator
Dated as of , 199_
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I
DEFINITIONS
Section 1.01 Definitions...................................................1
Section 1.02 Other Definitional Provisions................................28
ARTICLE II
SALE AND CONVEYANCE OF THE TRUST FUND
Section 2.01 Sale and Conveyance of Trust Account Property.
Priority and Subordination of Ownership Interests...........30
Section 2.02 Possession of Mortgage Files...................................30
Section 2.03 Books and Records..............................................30
Section 2.04 Delivery of Mortgage Loan Documents............................31
Section 2.05 Acceptance by Trustee and Custodian of the Trust Fund;
Certain Substitutions; Certification by Trustee
and Custodian...............................................33
Section 2.06 Fees and Expenses of the Trustee and Co-Trustee................35
Section 2.07 Sale and Conveyance of the Subsequent Mortgage Loans...........35
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.01 Representations of Representative, Servicer, Claims
Administrator and Originators..................................38
Section 3.02 Individual Mortgage Loans.......................................44
Section 3.03 Purchase and Substitution.......................................55
ARTICLE IV
ADMINISTRATION AND SERVICING OF MORTGAGE LOANS
Section 4.01 Duties of the Servicer..........................................56
Section 4.02 Liquidation of Mortgage Loans...................................59
Section 4.03 Establishment of Principal and Interest Accounts;
Deposits in Principal and Interest Account....................60
Section 4.04 Permitted Withdrawals From the
Principal and Interest Account...............................61
Section 4.05 Payment of Taxes, Insurance and Other Charges...................63
Section 4.06 Transfer of Accounts............................................64
Section 4.07 Maintenance of Hazard Insurance.................................64
Section 4.08 Maintenance of Mortgage Impairment Insurance Policy ............64
Section 4.09 Fidelity Bond...................................................65
Section 4.10 Title, Management and Disposition of REO Property...............65
Section 4.11 [RESERVED]......................................................66
Section 4.12 Collection of Certain Mortgage Loan Payments....................66
Section 4.13 Access to Certain Documentation and Information
Regarding the Mortgage Loans..................................67
Section 4.14 Superior Liens..................................................67
Section 4.15 Duties of the Claims Administrator..............................67
ARTICLE V
GENERAL SERVICING PROCEDURE
Section 5.01 Assumption Agreements...........................................69
Section 5.02 Satisfaction of Mortgages and Release of Mortgage Files.........69
Section 5.03 Servicing Compensation and Contingency Fee......................71
Section 5.04 Annual Statement as to Compliance...............................72
Section 5.05 Annual Independent Public Accountants' Servicing Report.........72
Section 5.06 Trustee's, Co-Trustee's and Owner Trustee's Right to Examine
Servicer Records and Audit Operations..........................72
Section 5.07 Reports to the Trustee; Principal and
Interest Account Statements.....................................72
ARTICLE VI
REPORTS TO BE PROVIDED BY SERVICER
Section 6.01 Financial Statements............................................73
ARTICLE VII
DISTRIBUTIONS; RESERVE ACCOUNT
STATEMENTS TO CERTIFICATEHOLDERS AND NOTEHOLDERS
Section 7.01 Establishment of Trust Accounts.................................73
Section 7.02 Pre-Funding Account and Capitalized Interest Account........... 75
Section 7.03 FHA Premium Account.............................................77
Section 7.04 [RESERVED]......................................................78
Section 7.05 Distributions...................................................78
Section 7.06 Reserve Account.................................................79
Section 7.07 [Intentionally Omitted].........................................80
Section 7.08 Statements to Certificateholders and Noteholders................80
Section 7.09 Advances by the Servicer........................................82
Section 7.10 Compensating Interest...........................................82
Section 7.11 Establishment of Servicing Accounts; Collection of
Taxes, Assessments and Similar Items............................83
ARTICLE VIII
[RESERVED]
ARTICLE IX
THE SERVICER
Section 9.01 Indemnification; Third Party Claims.............................84
Section 9.02 Merger or Consolidation of the Representative, the
Servicer and the Claims Administrator..........................85
Section 9.03 Limitation on Liability of the Servicer and Others..............85
Section 9.04 Servicer and Claims Administrator Not to Resign.................85
Section 9.05 Appointment of Assistant Claims Administrator...................86
ARTICLE X
DEFAULT
Section 10.01 Servicer Default...............................................86
Section 10.02 Trustee and Co-Trustee to Act; Appointment of Successor........88
Section 10.03 Waiver of Defaults.............................................90
Section 10.04 [RESERVED].....................................................90
Section 10.05 Control by Majority Securityholders............................91
ARTICLE XI
TERMINATION
Section 11.01 Optional Purchase of All Mortgage Loans........................91
ARTICLE XII
ADMINISTRATIVE DUTIES OF THE SERVICER
Section 12.01 Administrative Duties..........................................92
Section 12.02 Records........................................................95
Section 12.03 Additional Information To Be Furnished to the Issuer ..........95
ARTICLE XIII
MISCELLANEOUS PROVISIONS
Section 13.01 Acts of Noteholders and Certificateholders.....................95
Section 13.02 Amendment......................................................95
Section 13.03 Recordation of Agreement.......................................96
Section 13.04 Duration of Agreement..........................................96
Section 13.05 Governing Law..................................................96
Section 13.06 Notices........................................................97
Section 13.07 Severability of Provisions.....................................97
Section 13.08 No Partnership.................................................97
Section 13.09 Counterparts...................................................97
Section 13.10 Successors and Assigns.........................................97
Section 13.11 Headings.......................................................98
Section 13.12 Assignment to Trustee..........................................98
Section 13.13 Nonpetition Covenant...........................................98
Section 13.14 Limitation of Liability of Owner Trustee and Trustee .........98
Section 13.15 Independence of the Servicer ..................................99
Section 13.16 Notification to Rating Agencies ...............................99
EXHIBITS
SCHEDULE I Description of Certain Litigation
EXHIBIT A Contents of Mortgage File
EXHIBIT B Principal and Interest Account Letter Agreement
EXHIBIT C Form of Trustee/Co-Trustee Initial Certification
EXHIBIT C-1 Form of Trustee/Co-Trustee Interim Certification
EXHIBIT D Form of Trustee/Co-Trustee Final Certification
EXHIBIT E Mortgage Loan Schedule
EXHIBIT F List of Originators
EXHIBIT G Request for Release of Documents
EXHIBIT G-1 Request for Release Documents of 90 Day Delinquent FHA Loans
EXHIBIT H [Reserved]
EXHIBIT I Custodial Agreement
EXHIBIT J FHA Custodial Agreement
EXHIBIT K Form of Liquidation Report
EXHIBIT L Form of Delinquency Report
EXHIBIT M Servicer's Monthly Computer Tape Format
EXHIBIT N Subservicing Agreement
EXHIBIT O Prices for Low Interest Mortgage Loans
<PAGE>
SALE AND SERVICING AGREEMENT
dated as of ______________, 1997, among
THE MONEY STORE Trust 199_-_, a Delaware
business trust (the "Issuer"), the entities
listed on Exhibit F hereto (collectively,
the "Originators"), and The Money Store
Inc., a New Jersey corporation, ("TMS") as
Representative (the "Representative"),
Servicer (the "Servicer") and Claims
Administrator (the "Claims Administrator").
WHEREAS, the Issuer desires to purchase a portfolio of mortgage loans
from the Originators;
WHEREAS, the Originators have either originated and underwritten, or
purchased and re-underwritten, such mortgage loans, and are willing to sell such
mortgage loans to the Issuer; and
WHEREAS, the Servicer is willing to service such mortgage loans and the
Claims Administrator is willing to serve as Claims Administrator;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01 DEFINITIONS. Whenever used in this Agreement, the
following words and phrases shall have the following meanings:
ACCOUNT: The Certificate Distribution Account, Note Distribution
Account, Pre-Funding Account, Expense Account, Capitalized Interest Account,
Reserve Account or Servicing Account (including any sub-accounts of any of the
foregoing) and the FHA Premium Account.
ADDITION NOTICE: With respect to the transfer of Subsequent Mortgage
Loans to the Trust Fund pursuant to Section 2.07 herein, notice, which shall be
given not later than five Business Days prior to the related Subsequent Transfer
Date, of the Representative's designation of Subsequent, Mortgage Loans to be
sold to the Trust Fund and the aggregate Principal Balance of such Subsequent
Mortgage Loans.
ADJUSTED MORTGAGE INTEREST RATE: A percentage per annum, equal to the
related Mortgage Interest Rate less the per annum rate used in calculating (i)
the Annual Expense Escrow Amount, (ii) the FHA Premium in connection with FHA
Loans for which the related Mortgagor pays the FHA Premium as part of the
Mortgage Interest Rate, (iii) the Servicing Fee and (iv) the Contingency Fee.
[AGGREGATE NET LOSSES: With respect to a Due Period, the aggregate
principal balance of all Mortgage Loans newly designated during such Due Period
as Liquidated Mortgage Loans minus Liquidation Proceeds collected during such
Due Period with respect to all Liquidated Mortgage Loans.]
AGREEMENT: This Sale and Servicing Agreement, as the same may be
amended and supplemented from time to time.
ANNUAL EXPENSE ESCROW AMOUNT: An amount equal to the product of (i)
.__% per annum and (ii) the sum of the Certificate Balance and the aggregate
Note Balance, which is computed and payable on a monthly basis and represents
the estimated annual Trustee's and Co-Trustee's fees and expenses of the Trust
Fund.
ASSIGNMENT OF MORTGAGE: An assignment, notice of transfer or
equivalent instrument, in recordable form, sufficient under the laws of the
jurisdiction in which the related Mortgaged Property is located to reflect the
sale of the Mortgage to the Issuer, which assignment, notice of transfer or
equivalent instrument may be in the form of one or more blanket assignments
covering the Mortgage Loans secured by Mortgaged Properties located in the same
jurisdiction.
AVAILABLE PRINCIPAL: With respect to any Remittance Date, the sum of
the following amounts without duplication: (a) that portion of all collections
on the Mortgage Loans allocable to principal in respect of the preceding Due
Period; (b) Liquidation Proceeds attributable to the principal amount of
Mortgage Loans which became Liquidated Mortgage Loans during the preceding Due
Period in accordance with the Servicer's customary servicing procedures; (c) to
the extent attributable to principal, the Purchase Price of each Mortgage Loan
repurchased by the Originators or purchased by the Servicer during the preceding
Due Period; and (d) amount to be transferred from the Prefunding Account to the
Note Distribution Account with respect to the Remittance Date in __________;
PROVIDED, HOWEVER, that in calculating the Available Principal, all payments and
proceeds (including Liquidation Proceeds) of any Mortgage Loans repurchased by
the Originators or purchased by the Servicer the Purchase Price of which has
been included in the Available Principal in a prior Due Period shall be
excluded.
BASIC DOCUMENTS: The Certificate of Trust, the Trust Agreement, the
Indenture, the Depository Agreements, this Sale and Servicing Agreement and
other documents and certificates delivered in connection therewith.
BIF: The Bank Insurance Fund, or any successor thereto.
BUSINESS DAY: Any day other than (i) a Saturday or a Sunday or (ii) a
day on which banking institutions in the States of New York or ____________ are
required or authorized by law to be closed.
CAPITALIZED INTEREST ACCOUNT: The account established in accordance
with Section 7.02(e) hereof and maintained by the Trustee.
CAPITALIZED INTEREST REQUIREMENT: With respect to each Remittance Date
during the Funding Period, the excess, if any, of (i) 30 days' interest
calculated at the Weighted Average Remittance Rate on the excess of (a) the Note
Balance for such remittance Date (or, with respect to the first Remittance Date,
the Closing Date) over (b) the aggregate Principal Balances of the Mortgage
Loans as of the immediately preceding Remittance Date (or, with respect to the
first Remittance Date, the Closing Date) over (ii) any Pre-Funding Earnings to
be transferred to the Note Distribution Account on such Remittance Date pursuant
to Section 7.02(f).
CERTIFICATE: A Trust Certificate (as defined in the Trust Agreement).
CERTIFICATE BALANCE: Equals, initially, $ and, thereafter, equals the
initial Certificate Balance, reduced by all amounts allocable to principal
previously distributed to Certificateholders.
CERTIFICATE DISTRIBUTION ACCOUNT: Has the meaning assigned to such
term in the Trust Agreement.
CERTIFICATEHOLDER or HOLDER: Each Person in whose name a Certificate
is registered in the Certificate Register, except that, solely for the purposes
of giving any consent, waiver, request or demand pursuant to the Basic
Documents, any Certificate registered in the name of the Representative, the
Servicer, the Claims Administrator, any Subservicer or any Originator, or any
affiliate of any of them, shall be deemed not to be outstanding and the
undivided percentage interest evidenced thereby shall not be taken into account
in determining whether the requisite percentage of Certificates necessary to
effect any such consent, waiver, request or demand has been obtained.
CERTIFICATEHOLDERS' DISTRIBUTABLE AMOUNT: With respect to any
Remittance Date, the sum of the Certificateholders' Interest Distributable
Amount and the Certificateholders' Principal Distributable Amount.
CERTIFICATEHOLDERS' INTEREST CARRYOVER SHORTFALL: With respect to any
Remittance Date, the excess of the Certificateholders' Monthly Interest
Distributable Amount for the preceding Remittance Date and any outstanding
Certificateholders' Interest Carryover Shortfall on such preceding Remittance
Date, over the amount in respect of interest at the Certificate Rate that is
actually deposited in the Certificate Distribution Account on such preceding
Remittance Date, plus interest on such excess, to the extent permitted by law,
at the Certificate Rate from and including such preceding Remittance Date to but
excluding the current Remittance Date.
CERTIFICATEHOLDERS' INTEREST DISTRIBUTABLE AMOUNT: With respect to any
Remittance Date, the sum of the Certificateholders' Monthly Interest
Distributable Amount for such Remittance Date and the Certificateholders'
Interest Carryover Shortfall for such Remittance Date.
CERTIFICATEHOLDERS' MONTHLY INTEREST DISTRIBUTABLE AMOUNT: With
respect to any Remittance Date, 30 days of interest (or, in the case of the
first Remittance Date, interest accrued from and including the Closing Date to
but excluding such Remittance Date) at the Certificate Rate on the Certificate
Balance on the immediately preceding Remittance Date, after giving effect to all
payments of principal to the Certificateholders on or prior to such Remittance
Date (or, in the case of the first Remittance Date, the Certificate Balance on
the Closing Date).
CERTIFICATEHOLDERS' MONTHLY PRINCIPAL DISTRIBUTABLE AMOUNT: With
respect to any Remittance Date, the Certificateholders' Percentage of the
Principal Distribution Amount or, with respect to any Remittance Date on or
after the Remittance Date on which the outstanding principal balance of the
Class A- Notes is reduced to zero, 100% of the Principal Distribution Amount
(less any amount required on the first such Remittance Date to reduce the
outstanding principal balance of the Class A- Notes to zero, which shall be
deposited into the Note Distribution Account).
CERTIFICATEHOLDERS' PERCENTAGE: 100% minus the Noteholders'
Percentage.
CERTIFICATEHOLDERS' PRINCIPAL CARRYOVER SHORTFALL: As of the close of
any Remittance Date, the excess of the Certificateholders' Monthly Principal
Distributable Amount and any outstanding Certificateholders' Principal Carryover
Shortfall from the preceding Remittance Date, over the amount in respect of
principal that is actually deposited in the Certificate Distribution Account on
such current Remittance Date.
CERTIFICATEHOLDERS' PRINCIPAL DISTRIBUTABLE AMOUNT: With respect to
any Remittance Date, the sum of the Certificateholders' Monthly Principal
Distributable Amount for such Remittance Date and the Certificateholders'
Principal Carryover Shortfall as of the close of the preceding Remittance Date;
PROVIDED, HOWEVER, that the Certificateholders' Principal Distributable Amount
shall not exceed the Certificate Balance. In addition, on the Certificate Final
Scheduled Remittance Date, the principal required to be distributed to
Certificateholders will include the lesser of (a) any payments of principal due
and remaining unpaid on each Mortgage Loan in the Trust as of , or (b) the
portion of the amount that is necessary (after giving effect to the other
amounts to be deposited in the Certificate Distribution Account on such
Remittance Date and allocable to principal) to reduce the Certificate Balance to
zero, in either case after giving effect to any required distribution of the
Noteholders' Principal Distributable Amount to the Note Distribution Account. In
addition, on any Remittance Date on which, after giving effect to all
distributions to the Servicer, the Noteholders and the Certificateholders on
such Remittance Date, (i) the outstanding principal balance of the Notes is zero
and (ii) the amount on deposit in the Spread Account is equal to or greater than
the Certificate Balance, Certificateholders' Principal Distributable Amount
shall include an amount equal to such Certificate Balance.
CERTIFICATE RATE: ___% per annum.
[CHARGE-OFF RATE: With respect to a Due Period, the Aggregate Net
Losses with respect to the Mortgage Loans expressed, on an annualized basis, as
a percentage of the average of (x) the Pool Balance on the last day of the
immediately preceding Due Period and (y) the Pool Balance on the last day in
such Due Period.]
CIVIL RELIEF ACT: The Soldiers' and Sailors' Civil Relief Act of 1940,
as amended.
CLAIM: An insurance claim submitted to the FHA by the Claims
Administrator with respect to a 90 Day Delinquent FHA Loan pursuant to the FHA
Regulations.
CLAIMS ADMINISTRATOR: The Servicer, acting in the capacity of Claims
Administrator appointed as herein provided.
CLASS ADJUSTED MORTGAGE LOAN REMITTANCE RATE: With respect to each
Mortgage Loan, a percentage per annum, being the sum of (i) the Weighted Average
Remittance Rate, (ii) ___% per annum, relating to the Annual Expense Escrow
Amount, and (iii) with respect to the FHA Loans for which the FHA Insurance
Premium is paid by the related Mortgagor as part of the Mortgage Interest Rate,
the Insurance Rate.
CLOSING DATE: _________________, 199_.
CODE: The Internal Revenue Code of 1986, as amended, or any successor
legislation thereto.
COMPENSATING INTEREST: As defined in Section 7.10.
CONTINGENCY FEE: As to each Mortgage Loan, the annual fee which is, in
addition to the Servicing Fee, payable to the Servicer pursuant to Section 5.03
of this Agreement. Such fee shall be calculated and payable monthly only from
the amounts received in respect of interest on such Mortgage Loan, shall accrue
at the rate of __% per annum and shall be computed on the basis of the same
principal amount and for the period respecting which any related interest
payment on a Mortgage Loan is computed. The Contingency Fee is payable solely
from the interest portion of related (i) Monthly Payments, (ii) Liquidation
Proceeds or (iii) Released Mortgaged Property Proceeds collected by the
Servicer, or as otherwise provided in Section 4.04.
CONTRACT OF INSURANCE: A Contract of Insurance under Title I.
CONVENTIONAL LOANS: Mortgage Loans that are not FHA Loans.
CO-TRUSTEE: _________________, a _________ headquartered in _________,
_________.
CUMULATIVE REALIZED LOSSES: As of any date of determination, the
aggregate amount of Realized Losses with respect to the applicable Pool of
Mortgage Loans since the Closing Date.
CURTAILMENT: With respect to a Mortgage Loan, any payment of principal
received during a Due Period as part of a payment that is in excess of five
times the amount of the Monthly Payment due for such Due Period and which is not
intended to satisfy the Mortgage Loan in full, nor is intended to cure a
delinquency.
CUSTODIAL AGREEMENT: Any agreement to be entered into pursuant to the
Indenture for the retention of each Mortgage File.
CUSTODIAN: Any custodian appointed pursuant to the Indenture, provided
that such custodian shall be independent of the Servicer, the Representative and
the Claims Administrator, except in the event the Trustee or the Co-Trustee
shall be the Servicer or the Claims Administrator.
CUT-OFF DATE: ________ __, 199_; provided, however, that for purposes
of determining characteristics of the Initial Mortgage Loans as of the Cut-Off
Date, the Cut-Off Date for those Initial Mortgage Loans originated after
________ __, 199_ shall be deemed to be the date of the applicable Mortgage
Note.
CUTOFF DATE PRINCIPAL BALANCE: With respect to any Mortgage Loan, the
unpaid principal balance thereof as of the Cut-Off Date (or as of the applicable
date of substitution with respect to a Qualified Substitute Mortgage Loan
pursuant to Section 3.02 or 3.03).
DEALER LOANS: Mortgage Loans in which a dealer-contractor participates
in the financing.
[DEBT SERVICE REDUCTION: With respect to any Mortgage Loan, a
reduction by a court of competent jurisdiction of the Monthly Payment due on
such Mortgage Loan.]
DEFICIENT VALUATION: With respect to any Mortgage Loan, a valuation by
a court of competent jurisdiction of the Mortgaged Property in an amount less
than the then outstanding indebtedness under the Mortgage Loan, which valuation
results from a proceeding initiated under the United States Bankruptcy Code, as
amended from time to time (11 U.S.C.).
DELETED MORTGAGE LOAN: A Mortgage Loan replaced by a Qualified
Substitute Mortgage Loan.
[DELINQUENCY PERCENTAGE: With respect to a Due Period, the ratio of
(a) the outstanding principal balance of all outstanding Mortgage Loans 60 days
or more delinquent (which amount shall include Mortgage Loans in respect of
Mortgaged Properties that have been repossessed but not yet sold or otherwise
liquidated) as of the last day of such Due Period, determined in accordance with
the Servicer's normal practices, divided by (b) the outstanding principal
balance of all Mortgage Loans on the last day of such Due Period.]
DELIVERY: When used with respect to Trust Account Property means:
(a) with respect to bankers' acceptances, commercial paper,
negotiable certificates of deposit and other obligations that constitute
"instruments" within the meaning of Section 9.105(1)(i) of the UCC and are
susceptible of physical delivery, transfer thereof to the Trustee or its nominee
or custodian by physical delivery to the Trustee or its nominee or custodian
endorsed to, or registered in the name of, the Trustee or its nominee or
custodian or endorsed in blank, and, with respect to a certificated security (as
defined in Section 8-102 of the UCC) transfer thereof (i) by delivery of such
certificated security endorsed to, or registered in the name of, the Trustee or
its nominee or custodian or endorsed in blank to a financial intermediary (as
defined in Section 8-313 of the UCC) and the making by such financial
intermediary of entries on its books and records identifying such certificated
securities as belonging to the Trustee or its nominee or custodian and the
sending by such financial intermediary of a confirmation of the purchase of such
certificated security by the Trustee or its nominee or custodian, or (ii) by
delivery thereof to a "clearing corporation" (as defined in Section 8-102(3) of
the UCC) and the making by such clearing corporation of appropriate entries on
its books reducing the appropriate securities account of the transferor and
increasing the appropriate securities account of a financial intermediary by the
amount of such certificated security, the identification by the clearing
corporation of the certificated securities for the sole and exclusive account of
the financial intermediary, the maintenance of such certificated securities by
such clearing corporation or a "custodian bank" (as defined in Section 8-102(4)
of the UCC) or the nominee of either subject to the clearing corporation's
exclusive control, the sending of a confirmation by the financial intermediary
of the purchase by the Trustee or its nominee or custodian of such securities
and the making by such financial intermediary of entries on its books and
records identifying such certificated securities as belonging to the Trustee or
its nominee or custodian (all of the foregoing, "Physical Property"), and, in
any event, any such Physical Property in registered form shall be in the name of
the Trustee or its nominee or custodian; and such additional or alternative
procedures as may hereafter become appropriate to effect the complete transfer
of ownership of any such Trust Account Property to the Trustee or its nominee or
custodian, consistent with changes in applicable law or regulations or the
interpretation thereof;
(b) with respect to any securities issued by the U.S. Treasury,
FHLMC or by FNMA that is a book-entry security held through the Federal Reserve
System pursuant to Federal book-entry regulations, the following procedures, all
in accordance with applicable law, including applicable Federal regulations and
Articles 8 and 9 of the UCC: book-entry registration of such Trust Account
Property to an appropriate book-entry account maintained with a Federal Reserve
Bank by a financial intermediary which is also a "depository" pursuant to
applicable Federal regulations and issuance by such financial intermediary of a
deposit advice or other written confirmation of such book-entry registration to
the Trustee or its nominee or custodian of the purchase by the Trustee or its
nominee or custodian of such book-entry securities; the making by such financial
intermediary of entries in its books and records identifying such book-entry
security held through the Federal Reserve System pursuant to Federal book-entry
regulations as belonging to the Trustee or its nominee or custodian and
indicating that such custodian holds such Trust Account Property solely as agent
for the Trustee or its nominee or custodian; and such additional or alternative
procedures as may hereafter become appropriate to effect complete transfer of
ownership of any such Trust Account Property to the Trustee or its nominee or
custodian, consistent with changes in applicable law or regulations or the
interpretation thereof; and
(c) with respect to any item of Trust Account Property that is an
uncertificated security under Article 8 of the UCC and that is not governed by
clause (b) above, registration on the books and records of the issuer thereof in
the name of the financial intermediary, the sending of a confirmation by the
financial intermediary of the purchase by the Trustee or its nominee or
custodian of such uncertificated security, the making by such financial
intermediary of entries on its books and records identifying such uncertificated
certificates as belonging to the Trustee or its nominee or custodian.
DEPOSITORY: The Depository Trust Company, and any successor Depository
hereafter named.
DEPOSITORY AGREEMENTS: The Certificate Depository Agreement and the
Note Depository Agreement.
DESIGNATED DEPOSITORY INSTITUTION: With respect to each Principal and
Interest Account, an entity which is an institution whose deposits are insured
by either the BIF or SAIF administered by the FDIC, the unsecured and
uncollateralized long-term debt obligations of which shall be rated "A" or
better by S&P and A2 or better by Moody's, or one of the two highest short-term
ratings by S&P and the highest short term rating by Moody's, and which is either
(i) a federal savings association duly organized, validly existing and in good
standing under the federal banking laws, (ii) an institution duly organized,
validly existing and in good standing under the applicable banking laws of any
state, (iii) a national banking association duly organized, validly existing and
in good standing under the federal banking laws, or (iv) a principal subsidiary
of a bank holding company, in each case acting or designated by the Servicer as
the depository institution for a Principal and Interest Account.
DETERMINATION DATE: That day of each month which is the later of (i)
the third Business Day prior to the 15th day of such month and (ii) the seventh
Business Day of such month.
DIRECT PARTICIPANT: Any broker-dealer, bank or other financial
institution for which the Depository holds Class A Certificates from time to
time as a securities depository.
DUE DATE: The day of the month on which the Monthly Payment is due
from the Mortgagor on a Mortgage Loan.
DUE PERIOD: With respect to each Remittance Date, the calendar month
preceding the month in which such Remittance Date appears.
EXCESS PAYMENTS: With respect to a Due Period, any amounts received on
a Mortgage Loan in excess of the Monthly Payment due on the Due Date relating to
such Due Period which does not constitute either a Curtailment or a Principal
Prepayment or payment with respect to an overdue amount. Excess Payments are
payments of principal for purposes of this Agreement.
FDIC: The Federal Deposit Insurance Corporation and any successor
thereto.
FHA: The Federal Housing Administration, and its successors in
interest.
FHA INSURANCE PREMIUM: The premium charged by the FHA pursuant to 24
C.F.R. ss. 201.31, or any successor regulation, as payment for Title I insurance
coverage for an FHA Loan, which premium shall be the responsibility of the
Servicer, who will be reimbursed from the FHA Premium Account in accordance with
Section 4.04(b) hereof.
FHA LOAN: A Mortgage Loan that is partially insured by the FHA under
Title I.
FHA PAYMENT: The amount received from the FHA for a Claim filed with
respect to a 90 Day Delinquent FHA Loan.
FHA PREMIUM ACCOUNT: The account established and maintained by the
Trustee in accordance with Section 7.03 hereof.
FHA PREMIUM AMOUNT: With respect to any FHA Loan for any Remittance
Date, (i) if the FHA Insurance Premium is paid by the related Mortgagor as part
of the Mortgage Interest Rate on an FHA Loan, an amount equal to 1/12 of the
product of the Insurance Rate times the Principal Balance as of the first day of
the immediately preceding Due Period and (ii) if the related Mortgagor pays the
FHA Insurance Premium as a separate amount in addition to Monthly Payments, any
such amount received by the Servicer during the related Due Period.
FHA REGULATIONS: The regulations of the FHA with respect to Title I
Mortgage loans set forth in 24 C.F.R. ss. 201, as the same may be amended during
the term of this Agreement.
FHA RESERVE ACCOUNT: The account of the Co-Trustee maintained by the
FHA with respect to the FHA Loans and certain other mortgage loans in accordance
with Section 4.16 hereof, registered in the name of the Co-Trustee and insured
by the FHA under Title I in accordance with the FHA Regulations.
FHLMC: The Federal Home Loan Mortgage Corporation and any successor
thereto.
FHLMC: Federal Home Loan Mortgage Corporation or any successor
thereto.
FIDELITY BOND: As described in Section 4.09.
FINAL SCHEDULED REMITTANCE DATE: With respect to (i) the Class A-1
Notes, the _____ __ Remittance Date, (ii) the Class A-2 Notes, the Remittance
Date, [(iii) the Class A-3 Notes, the Remittance Date, (iv) the Class A-4
Notes, the Remittance Date, (v) the Class A-5 Notes, the Remittance Date and
(vi) the Certificates, the Remittance Date].
FINAL SCHEDULED MATURITY DATE: _________ __, ____ .
FNMA: The Federal National Mortgage Association and any successor
thereto.
FORECLOSURE PROFITS: With respect to a Liquidated Mortgage Loan, the
amount, if any, by which (i) the aggregate of the related Net Liquidation
Proceeds exceeds (ii) the related Principal Balance (plus accrued and unpaid
interest thereon at the applicable Mortgage Rate from the date interest was last
paid through the date of receipt of the final Liquidation Proceeds) of such
Liquidated Mortgage Loan immediately prior to the final recovery of its
Liquidation Proceeds.
FUNDING PERIOD: The period commencing on the Closing Date and ending
on the earliest to occur of (i) the date on which the amount on deposit in the
Pre-Funding Account is less than $_______, (ii) the date on which a Servicer
Default occurs and (iii) at the close of business on ____ __, 199_.
GP INTEREST: The 1% interest in the Trust held by ___________________,
a ___________ corporation, pursuant to the Trust Agreement.
HIGH-RISE CONDOMINIUM: A multiple dwelling unit of five stories or
more in which individual fee title is held to the interior space only and all
other elements of the structure and land are held in undivided common ownership.
HUD: The United States Department of Housing and Urban Development,
and its successor in interest.
INDENTURE: The Indenture dated as of ______ __, 199_,
between the Issuer and the Trustee, as the same may be amended and supplemented
from time to time.
INDIRECT PARTICIPANT: Any financial institution for whom any Direct
Participant holds an interest in any Certificate or Note.
INITIAL MORTGAGE LOANS: The Mortgage Loans listed on Exhibit E hereto
and delivered to the Trustee on the Closing Date.
INSOLVENCY EVENT: With respect to a specified Person, (a) the filing
of a decree or order for relief by a court having jurisdiction in the premises
in respect of such Person or any substantial part of its property in an
involuntary case under any applicable Federal or state bankruptcy, insolvency or
other similar law now or hereafter in effect, or appointing a receiver
(including any receiver appointed under the Financial Institutions Reform,
Recovery and Enforcement Act of 1989, as amended), liquidator, assignee,
custodian, trustee, sequestrator or similar official for such Person or for any
substantial part of its property, or ordering the winding-up or liquidation of
such Person's affairs, and such decree or order shall remain unstayed and in
effect for a period of 60 consecutive days; or (b) the commencement by such
Person of a voluntary case under any applicable Federal or state bankruptcy,
insolvency or other similar law now or hereafter in effect, or the consent by
such Person to the entry of an order for relief in an involuntary case under any
such law, or the consent by such Person to the appointment of or taking
possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator
or similar official for such Person or for any substantial part of its property,
or the making by such Person of any general assignment for the benefit of
creditors, or the failure by such Person generally to pay its debts as such
debts become due, or the taking of action by such Person in furtherance of any
of the foregoing.
INSURANCE PROCEEDS: Proceeds (other than FHA Payments) paid (i) to the
Issuer or the Servicer by any insurer pursuant to any insurance policy covering
a Mortgage Loan, Mortgaged Property, or REO Property, including but not limited
to title, hazard, life, health and/or accident insurance policies, and/or (ii)
by the Servicer pursuant to Section 4.08, in either case, net of any expenses
which are incurred by the Servicer in connection with the collection of such
proceeds and not otherwise reimbursed to the Servicer.
INSURANCE RATE: As to any FHA Loan with respect to which the FHA
Insurance Premium is paid by the related Mortgagor as part of the Mortgage
Interest Rate, the rate of 1.0% per annum, which is used to calculate the amount
to be applied to the payment of the related FHA Insurance Premium.
INTEREST DISTRIBUTION AMOUNT: With respect to any Remittance Date, the
sum of the following amounts without duplication: (a) that portion of all
collections on the Mortgage Loans allocable to interest in respect of the
preceding Due Period; (b) Liquidation Proceeds attributable to interest on the
Mortgage Loans which became Liquidated Mortgage Loans during the preceding Due
Period in accordance with the Servicer's customary servicing procedures; (c) the
Purchase Price of each Mortgage Loan that became a Purchased Mortgage Loan
during the preceding Due Period to the extent attributable to accrued interest
on such Mortgage Loan; (d) Recoveries for such Due Period; (e) Investment
Earnings for such Remittance Date; and (f) during the Funding Period, amounts to
be transferred to the Note Distribution Account from the Capitalized Interest
Account and the Pre-Funding Earnings; PROVIDED, HOWEVER, that in calculating the
Interest Distribution Amount, all payments and proceeds (including Liquidation
Proceeds) of any Purchased Mortgage Loans the Purchase Price of which has been
included in the Interest Distribution Amount in a prior Due Period shall be
excluded.
INTEREST RATE: Means (i) ___% per annum with respect to the Class A-1
Notes, (ii) __% per annum with respect to the Class A-2 Notes, (iii) ___% per
annum with respect to the Class A-3 Notes, (iv) ___% per annum with respect to
the Class A-4 Notes and (v) ___% per annum with respect to the Class A-5 Notes.
INVESTMENT EARNINGS: With respect to any Remittance Date, the
investment earnings (net of losses and investment expenses) on amounts on
deposit in the Trust Accounts and the Certificate Distribution Account.
ISSUER: means The Money Store Trust 199_-___ .
LIEN: A security interest, lien, charge, pledge or encumbrance of any
kind, other than tax liens, mechanics' liens and any liens which attach to the
respective Mortgage Loan by operation of law as a result of any act or omission
by the related Mortgagor.
LIQUIDATED MORTGAGE LOAN: (a) Any defaulted Mortgage Loan or REO
Property as to which the Servicer has determined that all amounts which it
reasonably and in good faith expects to recover have been recovered from or on
account of such Mortgage Loan (including, with respect to FHA Loans, FHA
Payments) or (b) any 90 Day Delinquent Loan offer than a 90 Day Delinquent FHA
Loan for which a Claim is eligible to be filed with the FHA.
LIQUIDATION PROCEEDS: Cash, including Insurance Proceeds, proceeds of
any REO Disposition, amounts required to be deposited in the Principal and
Interest Account pursuant to Section 4.10 hereof, and any other amounts other
than FHA Payments and Related Payments received in connection with the
liquidation of defaulted Mortgage Loans, whether through trustee's sale,
foreclosure sale or otherwise.
LOAN-TO-VALUE RATIO OR LTV: With respect to any Mortgage Loan, (i) the
sum of (a) the original principal balance of such Mortgage Loan plus (b) the
remaining balance of any Prior Lien, if any, at the time of origination of such
Mortgage Loan, less (c) that portion of the principal balance equal to the
amount of the premium for credit life insurance collected by the Originators,
divided by (ii) the value of the related Mortgaged Property, based upon the
appraisal (or, in the case of certain Mortgage Loans with original principal
balances of less than $15,000, such other method of valuation acceptable to the
related Originator) made at the time of origination of the Mortgage Loan.
LOW INTEREST MORTGAGE LOAN: A Mortgage Loan having a Mortgage Interest
Rate below the sum of the Certificate Rate plus _.__%.
LOW-RISE CONDOMINIUM: A multiple dwelling unit of four stories or less
in which individual fee title is held to the interior space only and all other
elements of the structure and land are held in undivided common ownership.
MAJORITY SECURITYHOLDERS: Until such time as the principal amount of
all classes of Notes have been reduced to zero, the holder or holders of in
excess of 50% of the current principal amount of all classes of Notes
(accordingly, the holders of the Certificates shall be excluded from any rights
or actions of the Majority Securityholders during such period); and (ii)
thereafter, the holder or holders of in excess of 50% of the Certificate
Balance.
[MAXIMUM SUBORDINATED AMOUNT: The initial Maximum Subordinated Amount
shall be $___________, which amount equals __.__% of the sum of the original
Pool Balance. On any Remittance Date, the Maximum Subordinated Amount shall
equal the initial Maximum Subordinated Amount less Cumulative Realized Losses
through the last day of the month preceding such Remittance Date. The Maximum
Subordinated Amount on any date other than a Remittance Date shall be equal to
the Maximum Subordinated Amount as of the immediately preceding Remittance Date
(or, prior to the first Remittance Date, the initial Maximum Subordinated
Amount), provided, however, that the Maximum Subordinated Amount shall never be
less than zero.]
MIXED USE BUILDING: A building containing both residential dwelling
units and commercial use units, E.G., retail stores or office space.
MONTHLY ADVANCE: An advance made by the Servicer pursuant to Section
7.09 hereof.
MONTHLY PAYMENT: The scheduled monthly payment of principal and/or
interest required to be made by a Mortgagor on the related Mortgage Loan, as set
forth in the related Mortgage Note.
MOODY'S: Moody's Investors Service, or any successor thereto.
MORTGAGE: The mortgage, deed of trust or other instrument creating a
lien on the Mortgaged Property.
MORTGAGE FILE: The mortgage documents listed in Section 2.04
pertaining to a particular Mortgage Loan and any additional documents required
to be added to the Mortgage File pursuant to this Agreement.
MORTGAGE IMPAIRMENT INSURANCE POLICY: As described in Section 4.08.
MORTGAGE INTEREST RATE: The fixed rate of interest borne by a Mortgage
Note, as shown on the applicable Mortgage Loan Schedule.
MORTGAGE LOAN: An individual mortgage loan which is transferred to the
Trustee or the Co-Trustee pursuant to this Agreement, including any Subsequent
Mortgage Loan, together with the rights and obligations of a holder thereof and
payments thereon and proceeds therefrom, the Mortgage Loans originally subject
to this Agreement being identified on the Mortgage Loan Schedules annexed hereto
as Exhibit E. Any mortgage loan which, although intended by the parties hereto
to have been, and which purportedly was, sold to the Issuer by the applicable
Originator (as indicated by Exhibit E), in fact was not sold or otherwise
transferred and assigned to the Trust Fund for any reason whatsoever, including,
without limitation, the incorrectness of the statement set forth in Section
3.02(i) hereof with respect to such mortgage loan, shall nevertheless be
considered a "Mortgage Loan" for all purposes of this Agreement.
MORTGAGE LOAN SCHEDULE: The schedule of Mortgage Loans attached hereto
as Exhibit E, such schedule identifying each Mortgage Loan by address of the
Mortgaged Property and the name of the Mortgagor and setting forth as to each
Mortgage Loan the following information: (i) the Principal Balance as of the
close of business on the Cut-Off Date, (ii) the account number, (iii) the
original principal amount, [(iv) the LTV as of the date of the origination of
the related Mortgage Loan,] (v) the Due Date, (vi) the Mortgage Interest Rate,
(vii) the first Due Date, (viii) the Monthly Payment, (ix) the maturity date of
the Mortgage Note, and (x) the remaining number of months to maturity as of the
Cut-Off Date. Also, the Mortgage Loan Schedule will indicate, based upon loan
number, whether the related Mortgage Loan is an FHA Loan or a Conventional Loan.
MORTGAGE NOTE: The note or other evidence of indebtedness evidencing
the indebtedness of a Mortgagor under a Mortgage Loan.
MORTGAGED PROPERTY: The underlying property securing a Mortgage Loan,
consisting of a fee simple estate in a single contiguous parcel of land improved
by a Residential Dwelling.
MORTGAGOR: The obligor on a Mortgage Note.
MULTIFAMILY LOANS: Mortgage Loans secured by Multifamily Properties.
MULTIFAMILY PROPERTY: A residential or mixed-use property, such as
rental apartment buildings or projects containing five or more units.
NET LIQUIDATION PROCEEDS: Liquidation Proceeds net of (i) any
reimbursements to the Servicer made therefrom pursuant to Section 4.04(b) and
(ii) amounts required to be released to the related Mortgagor pursuant to
applicable law.
1933 ACT: The Securities Act of 1993, as amended.
90 DAY DELINQUENT FHA LOAN: A 90 Day Delinquent Loan that is an FHA
Loan.
90 DAY DELINQUENT LOAN: With respect to any Remittance Date, a
Mortgage Loan with respect to which four consecutive Monthly Payments have not
been received by the Servicer as of the last day of the related Due Period
unless, on or prior to the last day of the Due Period in which the fourth
Monthly Payment is due, the Servicer has received from the related Mortgagor an
amount at least equal to one unpaid Monthly Payment.
NON-ACKNOWLEDGED FHA LOAN: As defined in Section 3.02(lll) hereof.
NONRECOVERABLE ADVANCES: With respect to any Mortgage Loan, (i) any
Monthly Advance previously made and not reimbursed pursuant to Section 4.04 or
7.09, or (ii) a Servicing Advance or Monthly Advance proposed to be made in
respect of a Mortgage Loan or REO Property which, in the good faith business
judgment of the Servicer, will not or, in the case of a proposed advance, would
not be ultimately recoverable pursuant to Sections 4.04 or 7.09.
NOTE BALANCE: Equals, initially __________ and, thereafter, equals the
initial Note Balance, reduced by all amounts allocable to principal previously
distributed to Noteholders.
NOTE DISTRIBUTION ACCOUNT: The account designated as such, established
and maintained pursuant to Section 7.01.
NOTEHOLDERS' DISTRIBUTABLE AMOUNT: With respect to any Remittance
Date, the sum of the Noteholders' Principal Distributable Amount and the
Noteholders' Interest Distributable Amount.
NOTEHOLDERS' INTEREST CARRYOVER SHORTFALL: With respect to any
Remittance Date, the excess of the Noteholders' Monthly Interest Distributable
Amount for the preceding Remittance Date and any outstanding Noteholders'
Interest Carryover Shortfall on such preceding Remittance Date, over the amount
in respect of interest that is actually deposited in the Note Distribution
Account on such preceding Remittance Date, plus interest on the amount of
interest due but not paid to Noteholders on the preceding Remittance Date, to
the extent permitted by law, at the respective Interest Rate borne by each class
of Notes from such preceding Remittance Date through the current Remittance
Date.
NOTEHOLDERS' INTEREST DISTRIBUTABLE AMOUNT: With respect to any
Remittance Date, the sum of the Noteholders' Monthly Interest Distributable
Amount for such Remittance Date and the Noteholders' Interest Carryover
Shortfall for such Remittance Date.
NOTEHOLDERS' MONTHLY INTEREST DISTRIBUTABLE AMOUNT: With respect to
any Remittance Date and any Class of Notes, 30 days of interest (or, in the case
of the first Remittance Date, the interest accrued from and including the
Closing Date to but excluding such Remittance Date) at the Interest Rate for
such class of Notes on the outstanding principal balance of the Notes of such
class on the immediately preceding Remittance Date, after giving effect to all
distributions of principal to Noteholders of such class on such Remittance Date
(or, in the case of the first Remittance Date, on the Closing Date).
NOTEHOLDERS' MONTHLY PRINCIPAL DISTRIBUTABLE AMOUNT: With respect to
any Remittance Date, the Noteholders' Percentage of the Principal Distribution
Amount.
NOTEHOLDERS' PERCENTAGE: 100% until the point in time at which Class
A-1 Notes, Class A-2 Notes [, Class A-3 Notes, Class A-4 Notes and Class A-5
Notes] have been paid in full and zero thereafter.
NOTEHOLDERS' PRINCIPAL CARRYOVER SHORTFALL: As of the close of any
Remittance Date, the excess of the Noteholders' Monthly Principal Distributable
Amount and any outstanding Noteholders' Principal Carryover Shortfall from the
preceding Remittance Date over the amount in respect of principal that is
actually deposited in the Note Distribution Account.
NOTEHOLDERS' PRINCIPAL DISTRIBUTABLE AMOUNT: With respect to any
Remittance Date, the sum of the Noteholder's Monthly Principal Distributable
Amount for such Remittance Date and the Noteholders' Principal Carryover
Shortfall as of the close of the preceding Remittance Date; PROVIDED, HOWEVER,
that the Noteholders' Principal Distributable Amount shall not exceed the
outstanding principal balance of the Notes. In addition, on the Final Scheduled
Remittance Date of each class of Notes, the principal required to be deposited
in the Note Distribution Account will include the amount necessary (after giving
effect to the other amounts to be deposited in the Note Distribution Account on
such Remittance Date and allocable to principal) to reduce the Outstanding
Amount of such class of Notes to zero.
OFFICER'S CERTIFICATE: A certificate delivered to the Trustee or Co-
Trustee, as the case may be, signed by the Chairman of the Board, the President,
a Vice President or Assistant Vice President, the Treasurer, the Secretary, or
one of the Assistant Secretaries of the Representative, an Originator, the
Servicer or the Claims Administrator, as required by this Agreement.
OPINION OF COUNSEL: A written opinion of counsel, who may, without
limitation, be counsel for the Representative, the Servicer or the Claims
Administrator, reasonably acceptable to the Trustee and experienced in matters
relating thereto.
ORIGINAL COLLATERAL AMOUNT: The sum of (i) the aggregate Principal
Balance of the Initial Mortgage Loans as of the Cut-Off Date and (ii) the
Original Pre-Funded Amount.
ORIGINAL PRE-FUNDED AMOUNT: $___________.__, representing the amount
deposited in the Pre-Funding Account on the Closing Date.
[ORIGINAL VALUE: The value of the Mortgaged Property at the time of
origination of the related Mortgage Loan, such value being the lower of the
value of such property set forth in an appraisal acceptable to the originator of
the Mortgage Loan or the sales price of such property at the time of origination
or, in the case of a refinancing, the value of such property set forth in an
appraisal acceptable to the Originator.]
ORIGINATOR: Any of the entities listed on Exhibit F hereto, each of
which is a direct wholly-owned subsidiary of the Representative, and each of
which is a Subservicer as of the date hereof.
OWNER-OCCUPIED MORTGAGED PROPERTY: A Residential Dwelling as to which
the related Mortgagor represented at the time of the origination of the Mortgage
Loan an intent to occupy as such Mortgagor's primary, secondary or vacation
residence.
OWNER TRUST ESTATE: Has the meaning assigned to such term in the Trust
Agreement.
OWNER TRUSTEE: _________________________, not in its individual
capacity but solely as Owner Trustee under the Trust Agreement, its successors
in interest or any successor Owner Trustee under the Trust Agreement.
PERMITTED INSTRUMENTS: As used herein, Permitted Instruments shall
include the following:
(a) direct general obligations of, or obligations fully and
unconditionally guaranteed as to the timely payment of principal and interest
by, the United States or any agency or instrumentality thereof, provided such
obligations are backed by the full faith and credit of the United States, FHA
debentures, FHLMC senior debt obligations, Federal Home Loan Bank consolidated
senior debt obligations, and FNMA senior debt obligations, but excluding any of
such securities whose terms do not provide for payment of a fixed dollar amount
upon maturity or call for redemption;
(b) federal funds, certificates of deposit, time deposits and
banker's acceptances (having original maturities of not more than 365 days) of
any bank or trust company incorporated under the laws of the United States or
any state thereof, provided that the short-term debt obligations of such bank or
trust company at the date of acquisition thereof have been rated "A-1" or better
by S&P and Prime-1 or better by Moody's;
(c) deposits of any bank or savings and loan association which has
combined capital, surplus and undivided profits of at least $3,000,000 which
deposits are held only up to the limits insured by the BIF or SAIF administered
by the FDIC, provided that the unsecured long-term debt obligations of such bank
or savings and loan association have been rated "BBB" or better by S&P and Baa3
or better by Moody's;
(d) commercial paper (having original maturities of not more than 365
days) rated "A-1" or better by S&P and Prime-1 or better by Moody's;
(e) debt obligations rated "AAA" by S&P and Aaa by Moody's (other than
any such obligations that do not have a fixed par value and/or whose terms do
not promise a fixed dollar amount at maturity or call date);
(f) investments in money market funds rated "AAA" or better by S&P or
"Aaa" or better by Moody's the assets of which are invested solely in
instruments described in clauses (a)-(e) above;
(g) guaranteed investment contracts or surety bonds issued by or
reasonably acceptable to the Certificate Insurer providing for the investment of
funds in an account or insuring a minimum rate of return on investments of such
funds, which contract or surety bond shall:
(i) be an obligation of an insurance company or other
corporation whose debt obligations or insurance financial
strength or claims paying ability are rated "AAA" by S&P and
"Aaa" by Moody's; and
(ii) provide that the Trustee may exercise all of the rights
of the Representative under such contract or surety bond without
the necessity of the taking of any action by the Representative;
(h) A repurchase agreement that satisfies the following criteria:
(i) Must be between the Trustee and a dealer bank or
securities firm described in A. or B. below:
A. Primary dealers on the Federal Reserve reporting
dealer list which are rated "A" or better by S&P and
Moody's, or
B. Banks rated "A" or above by S&P and Moody's
(ii) The written repurchase agreement must include the
following:
A. Securities which are acceptable for the transfer
are:
1. Direct U.S. governments, or
2. Federal Agencies backed by the full
faith and credit of the U.S. government (and FNMA & FHLMC)
a. the term of the
repurchase agreement may be up to 60
days
b. the collateral
must be delivered to the Trustee or
third party custodian acting as agent
for the Trustee by appropriate book
entries and confirmation statements,
with a copy to the Certificate Insurer,
must have been delivered before or
simultaneous with payment (perfection by
possession of certificated securities)
c. Valuation of
collateral
3. The securities must be valued weekly,
marked- to-market at current market price plus accrued
interest
a. The value of the
collateral must be equal to at least
104% of the amount of cash transferred
by the Trustee or custodian for the
Trustee to the dealer bank or security
firm under the repurchase agreement plus
accrued interest. If the value of
securities held as collateral slips
below 104% of the value of the cash
transferred by the Trustee plus accrued
interest, then additional cash and/or
acceptable securities must be
transferred. If, however, the securities
used as collateral are FNMA or FHLMC,
then the value of collateral must equal
at least 105%.
(i) any other investment acceptable to the
Rating Agencies.
PERSON: Any individual, corporation, partnership, joint
venture, limited liability company, association, joint-stock company, trust,
national banking association, unincorporated organization or government or any
agency or political subdivision thereof.
PHYSICAL PROPERTY: Has the meaning assigned to such term in
the definition of "Delivery" above.
POOL BALANCE: As of the close of business on the last day of a
Due Period means the aggregate Principal Balance of the Mortgage Loans.
PRE-FUNDED AMOUNT: With respect to any date of determination,
the amount on deposit in the Pre-Funding Account.
PRE-FUNDING ACCOUNT: The Pre-Funding Account established in
accordance with Section 7.01 hereof and maintained by the Trustee.
PRE-FUNDING EARNINGS: With respect to each Remittance Dates
during the Funding Period, the actual investment earnings earned during the
period from the Closing Date through the Business Day immediately preceding the
related Determination Date on the Pre-Funding Account during such period as
calculated by the Representative pursuant to Section 2.07(e) hereof.
PRIMARY MORTGAGE INSURANCE POLICY: The certificate of
primary mortgage insurance relating to a particular Mortgage
Loan, or any replacement policy therefor.
PRINCIPAL AND INTEREST ACCOUNT: The principal and
interest account established by the Servicer pursuant to
Section 4.03 hereof.
PRINCIPAL BALANCE: With respect to any Mortgage Loan or
related REO Property, at any date of determination, (i) the principal balance of
the Mortgage Loan (or, with respect to a Low Interest Mortgage Loan, the product
of such principal balance and the percentage set forth on Exhibit O attached
hereto) outstanding as of the Cut-Off Date or as of the applicable Subsequent
Cut-Off Date relative to Subsequent Mortgage Loans or as of the applicable
substitution date relative to Qualified Substitute Mortgage Loans, after
application of principal payments received on or before such date, minus (ii)
the sum of (a) the principal portion of the Monthly Payments received during
each Due Period ending prior to the most recent Remittance Date, which were
distributed pursuant to Section 7.05 on any previous Remittance Date, and (b)
all Principal Prepayments, Curtailments, Excess Payments, all Insurance
Proceeds, Released Mortgaged Property Proceeds, Net Liquidation Proceeds and net
income from an REO Property (but not including the proceeds of any Insured
Payment) to the extent applied by the Servicer as recoveries of principal in
accordance with the provisions hereof, which were distributed pursuant to
Section 7.05 on any previous Remittance Date.
PRINCIPAL DISTRIBUTION AMOUNT: With respect to each Remittance
Date, the excess, if any, of (A) the sum, without duplication, of (i) all
payments and other recoveries of principal of a Mortgage Loan (net of amounts
reimbursable to the Servicer pursuant to this Agreement) received by the
Servicer or any Subservicer in the related Due Period; (ii) the principal
portion of any Mortgage Loan actually purchased by the Seller for breach of a
presentation and warranty or other defect and actually received by the Trustee
as of the related Determination Date; (iii) any Substitution Adjustments
deposited in the Principal and Interest Account as of the related Determination
Date; (iv) the then outstanding Principal
Balance of any Mortgage Loan which, during the related Due Period, has become a
Liquidated Mortgage Loan; and (v) the amount, if any, released from the
Pre-Funding Account on the Remittance Dates during the Funding Period.
PRINCIPAL PREPAYMENT: Any payment or other recovery of
principal on a Mortgage Loan equal to the outstanding principal balance thereof,
received in advance of the final scheduled Due Date which is intended to satisfy
a Mortgage Loan in full.
PRIOR LIEN: With respect to any Mortgage Loan which is not a
first priority lien, each mortgage loan relating to the corresponding Mortgaged
Property having a higher priority lien.
PUD AND DE MINIMIS PUD: A planned unit development in which
individual fee title is held to the interior and exterior of the units and
underlying land and common areas, recreational facilities and streets are held
in undivided common ownership.
QUALIFIED SUBSTITUTE MORTGAGE LOAN: A mortgage loan or
mortgage loans substituted for a Deleted Mortgage Loan pursuant to Section 2.05
or 3.03 hereof, which (i) has or have a mortgage interest rate or rates of not
less than (and not more than two percentage points more than) the Mortgage
Interest Rate for the Deleted Mortgage Loan, (ii) relates or relate to the same
type of Residential Dwelling or Multifamily Property, as the case may be, as the
Deleted Mortgage Loan, (iii) matures or mature no later than (and not more than
one year earlier than) the Deleted Mortgage Loan, (iv) has or have a
Loan-to-Value Ratio or Loan-to-Value Ratios at the time of such substitution [no
higher] than the Loan-to Value Ratio of the Deleted Mortgage Loan at such time,
(v) has or have a principal balance or principal balances (after application of
all payments received on or prior to the date of substitution) equal to or less
than the Principal Balance (prior to the occurrence of Realized Losses) of the
Deleted Mortgage Loan as of such date, (vi) with respect to each Deleted
Mortgage Loan that is a first mortgage loan, is a first mortgage loan, (vii) is
an FHA Loan if the Deleted Mortgage Loan was an FHA Loan or a Conventional
Mortgage Loan if the Deleted Mortgage Loan was a Conventional Mortgage Loan and
(viii) complies or comply as of the date of substitution with each
representation and warranty set forth in Sections 3.01(b) and 3.02.
RATING AGENCY CONDITION: With respect to any action, that each
of the Rating Agencies shall have notified the Servicer, the Owner Trustee and
the Trustee, orally or in writing, that such action will, in and of itself,
result in a reduction or withdrawal of the then current rating of any class of
Notes, or the Certificates.
RATING AGENCIES: Moody's and S&P.
REALIZED LOSS: With respect to each Liquidated Mortgage Loan
(including a 90 Day Delinquent FHA Loan as to which no Claim is eligible to be
filed with the FHA), an amount (not less than zero or greater than the related
outstanding principal balance as of the date of the final liquidation) equal to
the outstanding principal balance of the Mortgage Loan as of the date of such
liquidation, minus the Net Liquidation Proceeds relating to such Liquidated
Mortgage Loan (such Net Liquidation Proceeds to be applied first to the
principal balance of the Liquidated Mortgage Loan and then to interest thereon).
With respect to each 90 Day Delinquent FHA Loan for which a Claim is eligible to
be filed with the FHA, the Realized Loss, if any, shall be determined as of the
Determination Date following the date the related FHA Payment is received by the
Co-Trustee, and shall be an amount (not less than zero or greater than the
related outstanding principal balance as of the date the Claim relating to such
FHA Loan is filed with the FHA) equal to the outstanding principal balance of
the FHA Loan as of the date of such filing, minus amounts paid from the
Certificate Account relating to such 90 Day Delinquent FHA Loan (such amounts to
be applied first to the principal balance of such FHA Loan and then to interest
thereon). With respect to each Mortgage Loan which has become the subject of a
Deficient Valuation, the Realized Loss shall be calculated as the difference
between the principal balance of the Mortgage Loan immediately prior to such
Deficient Valuation and the principal balance of the Mortgage Loan as reduced by
the Deficient Valuation. With respect to any Mortgage Loan made to a Mortgagor
who has filed a petition in bankruptcy under the United States Bankruptcy Code,
as amended from time to time (11 U.S.C.), a Realized Loss shall be deemed to
have occurred whenever a withdrawal is made from the Principal and Interest
Account in respect of such Mortgage Loan pursuant to Section 5.04(c), and shall
be equal to the amount of such withdrawal.
RECORD DATE: With respect to any Remittance Date, the close of
business on the last day of the month immediately preceding the month of the
related Remittance Date.
RECOVERIES: With respect to any Liquidated Mortgage Loan,
monies collected in respect thereof, from whatever source, during any Due Period
following the Due Period in which such Mortgage Loan became a Liquidated
Mortgage Loan, net of the sum of any amounts expended by the Servicer for the
account of the Mortgagor and any amounts required by law to be remitted to the
Mortgagor.
REGISTRATION STATEMENT: The registration statement (File No.
333- _________) filed by the Representative with the Securities and Exchange
Commission in connection with the issuance and sale of the Notes and the
Certificates, including the Prospectus dated _______ __, 199_ and the Prospectus
Supplement dated _____ __, 199_.
REIMBURSABLE AMOUNTS: As of any date of determination, an
amount payable to the Servicer and/or Representative with respect to (i) the
payment of any tax reimbursable pursuant to Section 4.01(h), (ii) the Monthly
Advances and Servicing Advances reimbursable pursuant to Section 4.04(b), (iii)
any advances reimbursable pursuant to Section 4.04 and not previously reimbursed
pursuant to Section 7.09, and (iv) any other amounts reimbursable to the
Servicer or the Representative pursuant to this Agreement.
RELATED PAYMENTS: As described in Section 4.15(c).
RELEASED MORTGAGED PROPERTY PROCEEDS: As to any Mortgage Loan,
proceeds received by the Servicer in connection with (a) a taking of an entire
Mortgaged Property by exercise of the power of eminent domain or condemnation or
(b) any release of part of the Mortgaged Property from the lien of the related
Mortgage, whether by partial condemnation, sale or otherwise, which are not
released to the Mortgagor in accordance with applicable law, the Servicer's
customary servicing procedures and this Agreement.
REMITTANCE DATE: The 15th day of any month or if such 15th day
is not a Business Day, the first Business Day immediately following, commencing
on _____ __, 199_; provided, however, that in no event shall the Remittance Date
occur less than three Business Days following the Determination Date.
REO DISPOSITION: The final sale by the Servicer of a Mortgaged
Property acquired by the Servicer in foreclosure or by deed in lieu of
foreclosure. The proceeds of any REO Disposition constitute part of the
definition of Liquidation Proceeds.
REO PROPERTY: As described in Section 4.10.
REPRESENTATIVE: The Money Store Inc., a New Jersey
corporation, and its successors and assigns as Representative hereunder.
RESERVE ACCOUNT: The account designated as such,
established and maintained pursuant to Section 7.06.
RESERVE ACCOUNT INITIAL DEPOSIT: With respect to the
Closing Date, $__________.
RESERVE ACCOUNT TRANSFER AMOUNT: An amount equal to the lesser
of (i) the amount of cash or other immediately available funds on deposit in the
Reserve Account on such Remittance Date (before giving effect to any withdrawals
therefrom relating to such Remittance Date) or (ii) the amount, if any, by which
(x) the sum of the Total Servicing Fee, the Noteholders' Interest Distributable
Amount, the Certificateholders' Interest Distributable Amount, the Noteholders'
Principal Distributable Amount and the Certificateholders' Principal
Distributable Amount for such Remittance Date exceeds (y) the sum of the
Interest Distribution Amount and the Available Principal for such Remittance
Date.
RESERVE AMOUNT: As of any date of determination, the maximum
amount of FHA insurance available with respect to all FHA Loans. The Reserve
Amount initially will equal at least 10% of the ______________ Principal Balance
as of the Cut-Off Date and will decline as set forth in 24 C.F.R. ss. 201.32(b).
RESIDENTIAL DWELLING: Any one or more of the following, (i)
Single Family Detached House, (ii) Row House, (iii) Two-Family House, (iv)
Low-Rise Condominium, (v) PUD and De minimis PUD, (vi) Three- or Four-Family
House, (vii) HighRise Condominium, (viii) Mixed Use Building or (ix)
manufactured home (as defined in FNMA/FHLMC Seller-Servicers' Guide) to the
extent that it constitutes real property in the state in which it is located.
RESPONSIBLE OFFICER: When used with respect to the Trustee,
any officer assigned to the Corporate Trust Department, and when used with
respect to the Co-Trustee, any officer assigned to the Corporate Trust
Department, in each case including any Vice President, Assistant Vice President,
any Assistant Secretary, any trust officer or any other officer of the Trustee
or Co-Trustee customarily performing functions similar to those performed by any
of the above designated officers and also, with respect to a particular matter,
any other officer to whom such matter is referred because of such officer's
knowledge of and familiarity with the particular subject. When used with respect
to the Representative, an Originator or any other person, any Vice President,
Assistant Vice President, the Treasurer, or any Secretary or Assistant
Secretary.
ROW HOUSE: A single family dwelling unit attached to
another dwelling unit by common walls.
SAIF: The Savings Association Insurance Fund, or any
successor thereto.
SERIES: 199_-_.
SERVICER: The Money Store Inc., a New Jersey corporation, and
its successors and assigns as Servicer hereunder.
SERVICER DEFAULT: An event specified in Section 10.01.
SERVICER'S CERTIFICATE: The certificate as defined in Section
7.08.
SERVICING ACCOUNT: The Servicing Account established and
maintained by the Servicer in accordance with Section 7.11 hereof. The Servicing
Account, and amounts deposited therein, shall not constitute part of the Trust
Account Property and Certificateholders shall have no interest therein.
SERVICING ADVANCES: All reasonable and customary "out of
pocket costs" and expenses incurred in the performance by the Servicer of its
servicing obligations, including, but not limited to, the cost of (i) the
preservation, restoration and protection of the Mortgaged Property, (ii) any
enforcement or judicial proceedings, including foreclosures, (iii) the
management and liquidation of the REO Property, (iv) compliance with the
obligations under clause (vi) of Section 4.01(a) and Sections 4.02, 4.05 and
4.07, which Servicing Advances are reimbursable to the Servicer to the extent
provided in Section 4.04(b), and (e) in connection with the liquidation of a
Mortgage Loan, expenditures relating to the purchase or maintenance of any Prior
Lien pursuant to Section 4.14, for all of which costs and expenses the Servicer
is entitled to reimbursement with interest thereon up to a maximum rate per
annum equal to the related Mortgage Interest Rate, except that any amount of
such interest accrued at a rate in excess of the Weighted Average Remittance
Rate with respect to the Remittance Date on which the Net Liquidation Proceeds
will be distributed shall be reimbursable only from Excess Proceeds.
SERVICING DELINQUENCY TRIGGER: Will be deemed to have occurred
on any date of determination (i) on or prior to ________ __, 199_, if the Total
Expected Losses (as defined below) of the Mortgage Loans exceed _._% of the
aggregate Principal Balances of the Mortgage Loans as of the end of the first
Due Period immediately following the Funding Period and (ii) after ________ __,
199_ but on or prior to ________ __, 200_, if the Total Expected Losses of the
Mortgage Loans exceed __._% of the sum of (A) the aggregate Principal Balances
of the Initial Mortgage Loans as of the Cut-off Date and (B) the aggregate
Principal Balances of the Subsequent Mortgage Loans as of the applicable
Subsequent Cut-off Date.
For purposes of the foregoing definition, the "Total Expected
Losses" of the Mortgage Loans on any date of determination shall equal the sum
of (i) the cumulative Realized Losses on the Mortgage Loans from the Closing
Date through and including such date of determination and (ii) the Delinquency
Calculation (as defined below).
For purposes of the foregoing definition, the "Delinquency
Calculation" on any date of determination shall equal the sum of:
(i) the Principal Balance of all Mortgage Loans 30-59 days
delinquent multiplied by __.__%;
(ii) the Principal Balance of all Mortgage Loans 60-89 days
delinquent multiplied by __.__%; and
(iii) the Principal Balance of all Mortgage Loans 90 days or
more delinquent multiplied by __.__%.
SERVICING FEE: As to each Mortgage Loan, the annual fee
payable to the Servicer. Such fee shall be calculated and payable monthly only
from the amounts received in respect of interest on such Mortgage Loan, shall
accrue at the rate of .__% per annum and shall be computed on the basis of the
same principal amount and for the period respecting which any related interest
payment on a Mortgage Loan is computed. The Servicing Fee is payable solely from
the interest portion of related (i) Monthly Payments, (ii) Liquidation Proceeds
or (iii) Released Mortgaged Property Proceeds collected by the Servicer, or as
otherwise provided in Section 4.04. The Servicing Fee includes any servicing
fees owed or payable to any Subservicer.
SERVICING OFFICER: Any officer of the Servicer or Claims
Administrator involved in, or responsible for, the administration and servicing
of the Mortgage Loans whose name and signature appears on a list of servicing
officers furnished to the Trustee or Co-Trustee by the Servicer or Claims
Administrator, as such list may from time to time be amended.
SINGLE FAMILY DETACHED HOUSE: A single family dwelling unit
not attached in any way to any other unit.
SINGLE FAMILY LOANS: Mortgage Loans secured by Mortgaged
Property consisting of one-to-four family units.
SIXTY-DAY DELINQUENCY RATIO: Means, as of any Remittance Date,
a fraction, expressed as a percentage, the numerator of which is the aggregate
of the outstanding Principal Balances of all Mortgage Loans that were delinquent
60 days or more as of the end of the prior Due Period (including Mortgage Loans
in respect of which the related real estate has been foreclosed upon but is
still in inventory), and the denominator of which is the sum of the Principal
Balances of all the Mortgage Loans as of the end of the immediately preceding
Due Period.
S&P: Standard & Poor's Ratings Services, a division of
McGraw-Hill, or any successor thereto.
SPECIAL HOLDINGS: TMS Special Holdings, Inc., a Delaware
corporation.
SPECIFIED RESERVE ACCOUNT BALANCE: With respect to (i) any
Remittance Date prior to the Remittance Date on which the outstanding amount of
the Class A- 1 Notes has been paid in full, $ and (ii) any Remittance Date on or
after the Remittance Date on which the Outstanding Amount of the Class A-1 Notes
has been paid in full the greater of (a) ____% of the sum of the aggregate
outstanding principal amount of each class of Notes plus the outstanding
Certificate Balance on such Remittance Date (after giving effect to all payments
on the Notes and distributions with respect to the Certificates to be made on
such Remittance Date); or (b) ____% of the sum of the aggregate initial
principal of the Notes plus the initial Certificate Balance except that, if on
any Remittance Date (x) the average of the Cumulative Realized Losses for the
three preceding Due Periods exceeds or (y) the average of the Sixty-Day
Delinquency Rate for the three preceding Due Periods exceeds %, then the
Specified Reserve Account Balance shall be an amount equal to % of the sum of
the aggregate outstanding principal amount of each class of Notes and the
aggregate outstanding Certificate Balance on such Remittance Date (after giving
effect to all payments on the Notes and distributions with respect to the
Certificates to be made on such Remittance Date).
SUBSEQUENT CUT-OFF DATE: The beginning of business on each
date specified in a Subsequent Transfer Agreement with respect to those
Subsequent Mortgage Loans which are transferred and assigned to the Trust Fund
pursuant to the related Subsequent Transfer Agreement.
SUBSEQUENT MORTGAGE LOANS: The Mortgage Loans sold to the
Trust Fund pursuant to Section 2.07, which shall be listed on the Schedule of
Mortgage Loans attached to the related Subsequent Transfer Agreement.
SUBSEQUENT TRANSFER AGREEMENT: Each Subsequent Transfer
Agreement dated as of a Subsequent Transfer Date executed by the Trustee, the
Co-Trustee, and the Representative, by which Subsequent Mortgage Loans are sold
and assigned to the Trust Fund.
SUBSEQUENT TRANSFER DATE: The date specified as such
in each Subsequent Transfer Agreement.
SUBSERVICER: Any Person with whom the Servicer has entered
into a Subservicing Agreement and who satisfies any requirements set forth in
Section 4.01(b) hereof in respect of the qualification of a Subservicer.
SUBSERVICING AGREEMENT: Any agreement between the Servicer and
any Subservicer relating to subservicing and/or administration of certain
Mortgage Loans as provided in Section 4.01(b), a copy of which shall be
delivered, along with any modifications thereto, to the Trustee.
SUBSTITUTION ADJUSTMENT: As to any date on which a
substitution occurs pursuant to Sections 2.05 or 3.03, the sum of (i) the amount
(if any) by which the aggregate principal balances (after application of
principal payments received on or before the date of substitution) of any
Qualified Substitute Mortgage Loans as of the date of substitution are less than
the aggregate of the Principal Balance, prior to the occurrence of Realized
Losses, of the related Deleted Mortgage Loans.
THREE- OR FOUR-FAMILY HOUSE: Three or four dwelling units
under one roof.
TITLE I: Section 2 of Title I of the National Housing Act and
the rules and regulations promulgated thereunder.
TMS: The Money Store Inc., a New Jersey Corporation.
TOTAL DISTRIBUTION AMOUNT: For each Remittance Date, the sum
of (i) the Interest Distribution Amount, (ii) the Available Principal and (iii)
the Reserve Account Transfer Amount, in each case in respect of such Remittance
Date.
TOTAL SERVICING FEE: With respect to each Remittance Date the
Servicing Fee for the related Due Period and all accrued and unpaid Servicing
Fees for prior Due Periods.
TRUST: The Issuer.
TRUST ACCOUNT PROPERTY: The Trust Accounts, all amounts and
investments held from time to time in any Trust Account (whether in the form of
deposit accounts, Physical Property, book-entry securities, uncertificated
securities or otherwise), including the Reserve Account Initial Deposit, and all
proceeds of the foregoing.
TRUST ACCOUNTS: Has the meaning assigned thereto in
Section 7.01(b).
TRUST AGREEMENT: Trust Agreement dated as of
, , between the Originators and the Owner Trustee, as
the same may be amended and supplemented from time to time.
TRUSTEE: The Person acting as Trustee under the
Indenture, its successors in interest and any successor
trustee under the Indenture.
TRUSTEE'S MORTGAGE FILE: The documents delivered to
the Trustee or the Custodian pursuant to Section 2.04.
TWO FAMILY HOUSE: Two dwelling units under one roof.
WEIGHTED AVERAGE REMITTANCE RATE: Means the average of the
Certificate Rate and the Interest Rate for each outstanding class of Notes,
weighted by the Certificate Balance and the outstanding principal amount of each
such class of Notes.
Section 1.02 OTHER DEFINITIONAL PROVISIONS.
(a) Capitalized terms used herein and not otherwise
defined herein have the meanings assigned to them in the Indenture, or, if not
defined therein, in the Trust Agreement.
(b) All terms defined in this Agreement shall have
the defined meanings when used in any instrument governed hereby and in any
certificate or other document made or delivered pursuant hereto unless otherwise
defined therein.
(c) As used in this Agreement, in any instrument
governed hereby and in any certificate or other document made or delivered
pursuant hereto or thereto, accounting terms not defined in this Agreement or in
any such instrument, certificate or other document, and accounting terms partly
defined in this Agreement or in any such instrument, certificate or other
document to the extent not defined, shall have the respective meanings given to
them under generally accepted accounting principles as in effect on the date of
this Agreement or any such instrument, certificate or other document, as
applicable. To the extent that the definitions of accounting terms in this
Agreement or in any such instrument, certificate or other document are
inconsistent with the meanings of such terms under generally accepted accounting
principles, the definitions contained in this Agreement or in any such
instrument, certificate or other document shall control.
(d) The words "hereof," "herein," "hereunder" and
words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this Agreement;
Section and Exhibit references contained in this Agreement are references to
Sections and Exhibits in or to this Agreement unless otherwise specified; and
the term "including" shall mean "including without limitation."
(e) The definitions contained in this Agreement are
applicable to the singular as well as the plural forms of such terms and to the
masculine as well as to the feminine and neuter genders of such terms.
<PAGE>
ARTICLE II
SALE AND CONVEYANCE OF THE TRUST FUND
Section 2.01 SALE AND CONVEYANCE OF TRUST ACCOUNT PROPERTY.
PRIORITY AND SUBORDINATION OF OWNERSHIP INTERESTS.
The Originators do hereby sell, transfer, assign, set over and
convey to the Issuer (or, with respect to the FHA Loans and the Reserve Amount,
the Co-Trustee on behalf of the Issuer) without recourse, subject to the terms
of this Agreement, all of the right, title and interest of the Originators in
and to the Initial Mortgage Loans, all rights under the Reserve Amount relating
to the FHA Loans and all other assets included or to be included in the Trust
Account Property.
Section 2.02 POSSESSION OF MORTGAGE FILES.
(a) Upon the issuance of the Notes and Certificates, the
ownership of each Mortgage Note, the Mortgage and the contents of the related
Mortgage File relating to the Initial Mortgage Loans is, and upon each
Subsequent Transfer Date the ownership of each Mortgage Note, the Mortgage and
the contents of the related Mortgage File relating to the applicable Subsequent
Mortgage Loans will be, vested in the Issuer (or, with respect to the FHA Loans,
the Co-Trustee on behalf of the Issuer) for the benefit of the Noteholders and
the Certificateholders, as the case may be.
(b) Pursuant to Section 2.04, the Originators have delivered
or caused to be delivered each Trustee's Mortgage File relating to the Initial
Mortgage Loans to the Trustee (or, with respect to the FHA Loans, the Custodian)
and on each Subsequent Transfer Date the Originators will deliver or cause to be
delivered each Mortgage File relating to the related Subsequent Mortgage Loans
to the Trustee (or, with respect to the FHA Loans, the Custodian).
Section 2.03 BOOKS AND RECORDS.
The sale of each Mortgage Loan shall be reflected on the
Originator's balance sheets and other financial statements as a sale of assets
by each Originator. Nothing in this Agreement, however, shall be deemed to
create a transfer of an FHA Loan in violation of Title I or the FHA Regulations.
The Originators shall be responsible for maintaining, and shall maintain, a
complete set of books and records for each Mortgage Loan which shall be clearly
marked to reflect the ownership of each Mortgage Loan by the Issuer for the
benefit of the Noteholders and the Certificateholders.
Section 2.04 DELIVERY OF MORTGAGE LOAN DOCUMENTS.
Each Originator, (i) contemporaneously with the delivery of
this Agreement, has delivered or caused to be delivered to the Trustee (or, with
respect to the FHA Loans, the Custodian) each of the following documents for
each Initial Mortgage Loan and (ii) on each Subsequent Transfer Date, will
deliver or cause to be delivered to the Trustee (or, with respect to the FHA
Loans, the Custodian) each of the following documents for each Subsequent
Mortgage Loan originated by such Originator:
(a) The original Mortgage Note, endorsed "Pay to
the order of holder" or "Pay to the order of __________________"
and signed, by facsimile or manual signature, in the name of the
Person delivering the note by a Responsible Officer, with all
prior and intervening endorsements showing a complete chain of
endorsement from the originator to such Person;
(b) Either: (i) the original Mortgage, with
evidence of recording thereon, (ii) a copy of the Mortgage
certified as a true copy by a Responsible Officer where the
original has been transmitted for recording until such time as
the original is returned by the public recording office or (iii)
a copy of the Mortgage certified by the public recording office
in those instances where the original recorded Mortgage has been
lost;
(c) Either: (i) the original Assignment of
Mortgage from the Person delivering such Assignment to "___
________________, as Trustee for The Money Store _______ Trust
199_-_" (or, with respect to the FHA Loans, to
"_________________, as Co-Trustee for The Money Store ____ Trust
199_-_") with evidence of recording thereon (provided, however,
that where permitted under the laws of the jurisdiction wherein
the Mortgaged Property is located, the Assignment of Mortgage may
be effected by one or more blanket assignments for Mortgage Loans
secured by Mortgaged Properties located in the same county), or
(ii) a copy of such Assignment of Mortgage certified as a true
copy by a Responsible Officer where the original has been
transmitted for recording (provided, however, that where the
original Assignment of Mortgage is not being delivered to the
Trustee (or, with respect to the FHA Loans, the Co-Trustee), each
such Responsible Officer may complete one or more blanket
certificates attaching copies of one or more Assignments of
Mortgage relating to the Mortgages originated by the related
Originator);
(d) Except with respect to the FHA Loans (i) The
original policy of title insurance or, if such policy has not yet
been delivered by the insurer, the commitment or binder to issue
same, or if the original principal balance of the Mortgage Loan
was less than or equal to $15,000 or the Mortgage Loan was not
originated by the Originators, other evidence of the status of
title, which shall consist of an attorney's opinion of title or
certificate of title, a preliminary title report, a property
search, a title search, a lot book report, a property information
report or a report entitled "prelim" or "PIRT" (property
information report), and (ii) proof of hazard insurance in the
form of a hazard insurance policy or hazard insurance policy
endorsement that names the related Originator, its successors and
assigns, as a mortgagee/loss payee, and, if such endorsement does
not show the amount insured by the related hazard insurance
policy, some evidence of such amount and (Y) with respect to the
FHA Loans, the written Mortgage Loan application, title report,
credit reconciliation worksheet, credit investigation receipts
and approval sheet;
(e) Either: (i) originals of all intervening
assignments, if any, showing a complete chain of title from the
originator to the Person delivering such assignment, including
warehousing assignments, with evidence of recording thereon if
such assignments were recorded, (ii) copies of any assignments
certified as true copies by a Responsible Officer where the
originals have been submitted for recording until such time as
the originals are returned by the public recording officer, or
(iii) copies of any assignments certified by the public recording
office in any instances where the original recorded assignments
have been lost;
(f) Originals of all assumption and modification
agreements, if any; and
(g) Except with respect to the FHA Loans and
certain Mortgage Loans with original principal balances of less
than $15,000, the appraisal made in connection with the
origination of the related Mortgage Loan with photographs of the
subject property and of comparable properties (if available),
constituting evidence sufficient to indicate that the Mortgaged
Property relates to a Residential Dwelling (or, with respect to
Multifamily Loans, a Multifamily Property) and identifying the
type thereof.
The Originator shall, within five Business Days after the
receipt thereof, and in any event, within one year of the Closing Date (or with
respect to the Subsequent Mortgage Loans, within one year of the related
Subsequent Transfer Date), deliver or cause to be delivered to the Trustee (or,
with respect to the FHA Loans, the Custodian): (a) the original recorded
Mortgage in those instances where a copy thereof certified by a Responsible
Officer was delivered to the Trustee (or, with respect to the FHA Loans, the
Custodian); (b) the original recorded Assignment of Mortgage to the Trustee (or,
with respect to the FHA Loans, the Co- Trustee), which, together with any
intervening assignments of Mortgage, evidences a complete chain of title from
the Originator to the Trustee (or, with respect to the FHA Loans, the Co-
Trustee) in those instances where copies thereof certified by a Responsible
Officer were delivered to the Trustee (or, with respect to the FHA Loans, the
Custodian); (c) any intervening assignments of Mortgage in those instances where
copies thereof certified by a Responsible Officer were delivered to the Trustee
(or, with respect to the FHA Loans, the Custodian); and (d) except with respect
to the FHA Loans, the title insurance policy, or, where no such policy is
required to be provided, the other evidence of title and hazard insurance
required in clause (d) above. Notwithstanding anything to the contrary contained
in this Section 2.04, in those instances where the public recording office
retains the original Mortgage, Assignment of Mortgage or the intervening
assignments of the Mortgage after it has been recorded, the Originator shall be
deemed to have satisfied its obligations hereunder upon delivery to the Trustee
(or, with respect to the FHA Loans, the Custodian) of a copy of such Mortgage,
Assignment of Mortgage or assignments of Mortgage certified by the public
recording office to be a true copy of the recorded original thereof. From time
to time the Originator may forward or cause to be forwarded to the Trustee (or,
with respect to the FHA Loans, the Custodian) additional original documents
evidencing an assumption or modification of a Mortgage Loan. All Mortgage Loan
documents held by the Trustee (or, with respect to the FHA Loans, the Custodian)
as to each Mortgage Loan are referred to herein as the "Trustee's Mortgage
File."
All recording required pursuant to this Section 2.04 shall be
accomplished by and at the expense of the Servicer.
Section 2.05 ACCEPTANCE BY TRUSTEE AND CUSTODIAN OF
THE TRUST FUND; CERTAIN SUBSTITUTIONS; CERTIFICATION BY
TRUSTEE AND CUSTODIAN.
(a) The Trustee (or, with respect to the FHA Loans,
the Custodian, as agent for the Co-Trustee) agrees to execute and deliver on the
Closing Date with respect to the Initial Mortgage Loans, and on each Subsequent
Transfer Date with respect to the related Subsequent Mortgage Loans, an
acknowledgment of receipt of, for each Mortgage Loan, an Assignment of Mortgage
or certified copy thereof, and a Mortgage Note, in the form attached as Exhibit
C hereto, and declares that it will hold such documents and any amendments,
replacements or supplements thereto, as well as any other assets included in the
definition of the Trust Account Property and delivered to the Trustee, as
Trustee in trust upon (or, with respect to the FHA Loans, to the Custodian, as
agent for the Co-Trustee) and subject to the conditions set forth herein for the
benefit of the Noteholders and the Certificateholders. The Trustee (or, with
respect to the FHA Loans, the Custodian) agrees, for the benefit of the
Noteholders and the Certificateholders, to review each Trustee's Mortgage File
relating to the Initial Mortgage Loans delivered to it within 60 days after the
Closing Date and each Trustee's Mortgage File relating to the Subsequent
Mortgage Loans delivered to it within 60 days after the related Subsequent
Transfer Date (or, with respect to any Qualified Substitute Mortgage Loan,
within 45 days after the assignment thereof) and, on each such date, to deliver
to the Representative and the Servicer a certification in the form attached
hereto as Exhibit C-1 to the effect that, as to each Mortgage Loan listed in the
Mortgage Loan Schedule (other than any Mortgage Loan paid in full or any
Mortgage Loan specifically identified in such certification as not covered by
such certification), with such exceptions, if any, as identified therein (i) all
documents required to be delivered to it pursuant to this Agreement are in its
possession (other than items listed in Section 2.04(d)(ii)), (ii) such documents
(other than items listed in Section 2.04(d)(ii)) have been reviewed by it and
have not been mutilated, damaged, torn or otherwise physically altered and
relate to such Mortgage Loan, (iii) based on its examination and only as to the
foregoing documents, the information set forth on the Mortgage Loan Schedule
accurately reflects the information set forth in the Trustee's Mortgage File,
and (iv) each Mortgage Note has been endorsed as provided in Section 2.04 of
this Agreement. Further, for each Mortgage Loan (other than the FHA Loans) with
an original principal balance in excess of $15,000 for which the documents in
the possession of the Trustee indicate that the related Originator conducted a
drive-by appraisal pursuant to FHLMC Form 704 or alternative FNMA Form in
connection with originating such Mortgage Loan, the Trustee shall verify whether
the Trustee's Mortgage File shows that such Mortgage Loan, (A) had an original
principal balance not in excess of $______, and (B) has a Loan-to Value Ratio
less than __% (based solely on the LTV included on the Mortgage Loan Schedule)
and/or an appraisal on FNMA/FHLMC Form 1004 was performed by the related
Originator within one year prior to the origination of such Mortgage Loan. The
Trustee and the Custodian shall be under no duty or obligation to inspect,
review or examine any such documents, instruments, certificates or other papers
to determine that they are genuine, enforceable, or appropriate for the
represented purpose or that they are other than what they purport to be on their
face. Within ___ days after the Closing Date, the Trustee (or, with respect to
the FHA Loans, the Custodian) shall deliver to the Servicer, the Representative,
the Certificate Insurer and any Noteholder or Certificateholder who requests a
copy from the Trustee (or, with respect to the FHA Loans, the Custodian) a final
certification in the form attached hereto as Exhibit D evidencing, if such be
the case, the completeness of the Trustee's Mortgage Files (other than items
listed in Section 2.04(d)(ii)).
(b) If the Trustee (or, with respect to the FHA
Loans, the Custodian) during the process of reviewing the Trustee's Mortgage
Files finds any document constituting a part of a Trustee's Mortgage File which
is not properly executed, has not been received, is unrelated to a Mortgage Loan
identified in the Mortgage Loan Schedule, or does not conform in a material
respect to the requirements of Section 2.04 or the description thereof as set
forth in the Mortgage Loan Schedule, the Trustee (or, with respect to the FHA
Loans, the Custodian) shall promptly so notify the Servicer, the Representative
and the Trustee (or, with respect to the FHA Loans, the Custodian),
respectively. In performing any such review, the Trustee and the Custodian may
conclusively rely on the related Originator as to the purported genuineness of
any such document and any signature thereon. It is understood that the scope of
the Trustee's (or, with respect to the FHA Loans, the Custodian's) review of the
Mortgage Files is limited solely to confirming that the documents listed in
Section 2.04 (other than the items listed in Section 2.04(d)(ii)) appear on
their face to have been executed and received and to relate to the Mortgage
Loans identified in the Mortgage Loan Schedule, and to verify that each
Mortgaged Property appears from the information contained in the Trustee's
Mortgage File to be a Residential Dwelling (or, with respect to the Multifamily
Loans, a Multifamily Property). The Representative agrees to use reasonable
efforts to remedy a material defect in a document constituting part of a
Mortgage File of which it is so notified by the Trustee or the Custodian. If,
however, within __ days after the Trustee's or the Custodian's notice to it
respecting such defect the Representative has not remedied the defect and the
defect materially and adversely affects the interest of the Noteholders and the
Certificateholders in the related Mortgage Loan, the Representative will (i)
substitute in lieu of such Mortgage Loan a Qualified Substitute Mortgage Loan in
the manner and subject to the conditions set forth in Section 3.03 or (ii)
purchase such Mortgage Loan at a purchase price equal to the Principal Balance
of the Mortgage Loan as of the date of purchase, before the occurrence of
Realized Losses, if any, plus 30 days' interest on such Principal Balance,
computed at the Class Adjusted Mortgage Loan Remittance Rate as of the next
succeeding Determination Date, plus any accrued unpaid Servicing Fees,
Contingency Fees, Monthly Advances and Servicing Advances reimbursable to the
Servicer, which purchase price shall be deposited in the applicable Principal
and Interest Account on the next succeeding Determination Date.
(c) Upon receipt by the Trustee (or, with respect
to the FHA Loans, the Custodian) of a certification of a Servicing Officer of
the Servicer of such substitution or purchase and the deposit of the amounts
described above in the applicable Principal and Interest Account (which
certification shall be in the form of Exhibit G hereto), the Trustee (or, with
respect to the FHA Loans, the Custodian) shall release to the Servicer for
release to the Representative the related Trustee's Mortgage File and the
Trustee (or, with respect to the FHA Loans, the Co-Trustee) shall execute,
without recourse, and deliver such instruments of transfer necessary to transfer
such Mortgage Loan to the Representative including, without limitation, for each
FHA Loan, an FHA Transfer of Note Report to be filed with the FHA. All costs of
any such transfer shall be borne by the Servicer.
If requested by either the Representative or the Servicer, on
the Remittance Date in ____ of each year, commencing 199_, the Trustee (and,
with respect to the FHA Loans, the Custodian) shall deliver to the
Representative and the Servicer a certification detailing all transactions with
respect to the Mortgage Loans for which the Trustee or the Custodian holds a
Trustee's Mortgage File pursuant to this Agreement during the prior calendar
year. Such certification shall list all Trustee's Mortgage Files which were
released by or returned to the Trustee or the Custodian during the prior
calendar year, the date of such release or return, the reason for such release
or return, and the person to whom the Trustee's Mortgage File was released or
the person who returned the Trustee's Mortgage File.
Section 2.06 FEES AND EXPENSES OF THE TRUSTEE AND CO-TRUSTEE
[The fees and expenses of the Trustee and Co-Trustee including
(i) the annual fees of the Trustee and Co-Trustee, payable annually in advance,
and subject to rebate to the Servicer as additional servicing compensation
hereunder for any fraction of a year in which this Agreement terminates, (ii)
any other fees and expenses to which the Trustee or Co-Trustee is entitled, and
(iii) reimbursements to the Servicer for any advances made by the Servicer to
the applicable Expense Accounts pursuant to Section 4.04 hereof, shall be paid
from the Expense Accounts in the manner set forth in Section 4.04 hereof;
PROVIDED, HOWEVER, that the Representative shall be liable for any expenses of
the Trust Fund incurred prior to the Closing Date. The Servicer, the Trustee and
the Co-Trustee hereby covenant with the Certificateholders that every material
contract or other material agreement entered into by the Trustee, the Co-
Trustee or the Servicer, acting as attorney-in-fact for the Trustee or the
Co-Trustee, on behalf of the Trust Fund shall expressly state therein that no
Certificateholder shall be personally liable in its capacity as such in
connection with such contract or agreement.]
Section 2.07 SALE AND CONVEYANCE OF THE SUBSEQUENT
MORTGAGE LOANS
(a) Subject to the conditions set forth in
paragraph (b) below, in consideration of the Trustee's delivery on the related
Subsequent Transfer Dates to or upon the order of the Representative of all or a
portion of the balance of funds in the Pre-Funding Account, the Originators
shall on any Subsequent Transfer Date sell, transfer, assign, set over and
otherwise convey without recourse, to the Trustee (or, with respect to the
subsequent FHA Loans, the Co-Trustee) all right, title and interest of the
applicable Originators in and to each Subsequent Mortgage Loan listed on the
Mortgage Loan Schedule delivered by the Representative on such Subsequent
Transfer Date, all their right, title and interest in and to principal collected
and interest accruing on each such Subsequent Mortgage Loan on and after the
related Subsequent Cut-Off Date and all their right, title and interest in and
to all Insurance Policies; PROVIDED, HOWEVER, that the Originators reserve and
retain all their right, title and interest in and to principal (including
Principal Prepayments) collected and interest accruing on each such Subsequent
Mortgage Loan prior to the related Subsequent Cut-Off Date. The transfer by the
Originators of the Subsequent Mortgage Loans set forth on the Mortgage Loan
Schedule to the Trustee (or, with respect to the Subsequent FHA Loans, the
Co-Trustee) shall be absolute and shall be intended by all parties hereto to be
treated as a sale by the Originators.
The amount released from the Pre-Funding Account shall be
one-hundred percent (100%) of the aggregate principal balances as of the related
Subsequent Transfer Date of the Subsequent Mortgage Loans so transferred;
provided, however, that the amount released from the Pre-Funding Account for a
Low Interest Mortgage Loan shall be the percentage set forth on Exhibit O
attached hereto of the aggregate principal balance thereof as of the related
Subsequent Transfer Date.
(b) The Originators shall transfer to the Trustee
(or, with respect to the Subsequent FHA Loans, the Co-Trustee) the Subsequent
Mortgage Loans and the other property and rights related thereto described in
paragraph (a) above only upon the satisfaction of each of the following
conditions on or prior to the related Subsequent Transfer Date:
(i) the Representative shall have provided the
Trustee (or, with respect to the Subsequent FHA Loans, the
Trustee, the Co-Trustee and the Custodian) with a timely Addition
Notice and shall have provided any information reasonably
requested by any of the foregoing with respect to the Subsequent
Mortgage Loans;
(ii) the Originators shall have delivered to the
Trustee (or, with respect to the Subsequent FHA Loans, the
Co-Trustee and the Custodian) a duly executed written assignment
(including an acceptance by the Trustee (or, with respect to the
Subsequent FHA Loans, the Co-Trustee and the Custodian)) which
shall include Mortgage Loan Schedules, listing the Subsequent
Mortgage Loans and any other exhibits listed thereon;
(iii) the Originators shall have deposited in the
Principal and Interest Account all collections in respect of the
Subsequent Mortgage Loans received on or after the related
Subsequent Cut-Off Date;
(iv) as of each Subsequent Transfer Date, none of
the related Originator, the Servicer or the Representative was
insolvent nor will any of them have been made insolvent by such
transfer nor is any of them aware of any pending insolvency;
(v) such addition will not result in a material
adverse tax consequence to the Trust Fund, the Noteholders or the
Holders of the Certificates;
(vi) the Pre-Funding Period shall not have
terminated;
(vii) the Representative shall have delivered to
the Trustee and, if Subsequent FHA Loans are being transferred on
such Subsequent Transfer Date, the Co-Trustee, an Officer's
Certificate confirming the satisfaction of each condition
precedent specified in this paragraph (b) and in the related
Subsequent Transfer Agreement; and
(viii) the Representative shall have delivered to
the FHA, the Rating Agencies and the Trustee and, if Subsequent
FHA Loans are being transferred on such Subsequent Transfer Date,
the Co-Trustee, Opinions of Counsel with respect to the transfer
of the Subsequent Mortgage Loans substantially in the form of the
Opinions of Counsel delivered to the Trustee and the Co-Trustee
on the Closing Date (bankruptcy, corporate and tax opinions).
(c) The obligation of the Trust Fund to purchase a Subsequent
Mortgage Loan on any Subsequent Transfer Date is subject to the requirement, as
evidenced by a certificate from a Responsible Officer of the Representative,
that such Subsequent Mortgage Loan conforms in all material respects to the
representations and warranties concerning the individual Initial Mortgage Loans
(including, if such Subsequent Mortgage Loan is an FHA Loan, the representations
and warranties concerning the FHA Loans) set forth in Sections 3.01 and 3.02
(except that any reference therein to the Cut-Off Date shall be deemed a
reference to the applicable Subsequent Cut-Off Date) and that the inclusion of
all Subsequent Mortgage Loans being transferred to the Trust Fund on such
Subsequent Transfer Date will not change, in any material respect, the
characteristics of the Initial Mortgage Loans, in the aggregate, set forth in
Sections 3.01 and 3.02 or in the Prospectus Supplement dated _____ __, 199_
forming a part of the Registration Statement under the headings "Summary of
Terms -- ___________________."
(d) In connection with the transfer and assignment of the
Subsequent Mortgage Loans, the Representative agrees to satisfy the conditions
set forth in Sections 2.01, 2.02, 2.03, 2.04 and 2.05.
(e) In connection with each Subsequent Transfer Date, on the
Remittance Dates during the Funding Period, the Representative shall determine,
and the Trustee shall cooperate with the Representative in determining (i) the
amount and correct dispositions of the Capitalized Interest Requirement,
Pre-Funding Earnings, the amounts of Pre-Funding Account moneys and (ii) any
other necessary matters in connection with the administration of the Pre-
Funding Account and of the Capitalized Interest Account.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.01 REPRESENTATIONS OF REPRESENTATIVE,
SERVICER, CLAIMS ADMINISTRATOR AND ORIGINATORS.
(a) The Representative, the Servicer and the Claims
Administrator (for the purposes of this Section 3.01(a), "The Money Store Inc.")
hereby represent and warrant to the Trustee, the Co-Trustee, the Noteholders and
the Certificateholders as of the Closing Date:
(i) The Money Store Inc. is a corporation duly
organized, validly existing, and in good standing under the laws
of the jurisdiction of its incorporation and has all licenses
necessary to carry on its business as now being conducted and is
licensed, qualified and in good standing in each Mortgaged
Property State if the laws of such state require licensing or
qualification in order to conduct business of the type conducted
by The Money Store Inc. and perform its obligations hereunder;
The Money Store Inc. has corporate power and authority to execute
and deliver this Agreement and each Subservicing Agreement and to
perform in accordance herewith and therewith; the execution,
delivery and performance of this Agreement and each Subservicing
Agreement (including all instruments of transfer to be delivered
pursuant to this Agreement and each Subservicing Agreement) by
The Money Store Inc. and the consummation of the transactions
contemplated hereby and thereby have been duly and validly
authorized by all necessary corporate action; this Agreement and
each Subservicing Agreement evidences the valid, binding and
enforceable obligation of The Money Store Inc.; The Money Store
Inc. is a Permitted Transferee; and all requisite corporate
action has been taken by The Money Store Inc. to make this
Agreement and each Subservicing Agreement valid, binding and
enforceable upon The Money Store Inc. in accordance with the
respective terms of each, subject to the effect of bankruptcy,
insolvency, reorganization, moratorium and other similar laws
relating to or affecting creditors' rights generally or the
application of equitable principles in any proceeding, whether at
law or in equity, none of which will affect the ownership of the
Mortgage Loans by the Trustee, as trustee;
(ii) All actions, approvals, consents, waivers,
exemptions, variances, franchises, orders, permits,
authorizations, rights and licenses required to be taken, given
or obtained, as the case may be, by or from any federal, state or
other governmental authority or agency (other than any such
actions, approvals, etc., under any state securities laws, real
estate syndication or "Blue Sky" statutes, as to which The Money
Store Inc. makes no such representation or warranty), that are
necessary or advisable in connection with the purchase and sale
of the Certificates and the execution and delivery by The Money
Store Inc. of the documents to which it is a party, have been
duly taken, given or obtained, as the case may be, are in full
force and effect on the date hereof, are not subject to any
pending proceedings or appeals (administrative, judicial or
otherwise) and either the time within which any appeal therefrom
may be taken or review thereof may be obtained has expired or no
review thereof may be obtained or appeal therefrom taken, and are
adequate to authorize the consummation of the transactions
contemplated by this Agreement and each Subservicing Agreement
and the other documents on the part of The Money Store Inc. and
the performance by The Money Store Inc. of its obligations under
this Agreement and each Subservicing Agreement and such of the
other documents to which it is a party;
(iii) The consummation of the transactions
contemplated by this Agreement and each Subservicing Agreement
will not result in the breach of any terms or provisions of the
certificate of incorporation or by-laws of The Money Store Inc.
or result in the breach of any term or provision of, or conflict
with or constitute a default under or result in the acceleration
of any obligation under, any material agreement, indenture or
loan or credit agreement or other material instrument to which
The Money Store Inc. or its property is subject, or result in the
violation of any law, rule, regulation, order, judgment or decree
to which The Money Store Inc. or its property is subject;
(iv) Neither this Agreement or any Subservicing
Agreement nor any statement, report or other document furnished
or to be furnished pursuant to this Agreement and each
Subservicing Agreement or in connection with the transactions
contemplated hereby and thereby contains any untrue statement of
material fact or omits to state a material fact necessary to make
the statements contained herein or therein not misleading;
(v) The Money Store Inc. does not believe, nor
does it have any reason or cause to believe, that it cannot
perform each and every covenant contained in this Agreement;
(vi) Except as set forth on Schedule I, there is
no action, suit, proceeding or investigation pending or, to the
best of The Money Store Inc.'s knowledge, threatened against The
Money Store Inc. which, either in any one instance or in the
aggregate, may result in any material adverse change in the
business, operations, financial condition, properties or assets
of The Money Store Inc. or in any material impairment of the
right or ability of The Money Store Inc. to carry on its business
substantially as now conducted, or in any material liability on
the part of The Money Store Inc. or which would draw into
question the validity of this Agreement and each Subservicing
Agreement or the Mortgage Loans or of any action taken or to be
taken in connection with the obligations of The Money Store Inc.
contemplated herein, or which would be likely to impair
materially the ability of The Money Store Inc. to perform under
the terms of this Agreement and each Subservicing Agreement;
(vii) The Trust Fund will not constitute an
"investment company" within the meaning of the Investment Company
Act of 1940, as amended;
(viii) The Money Store Inc. is not in default with
respect to any order or decree of any court or any order,
regulation or demand of any federal, state, municipal or
governmental agency, which default might have consequences that
would materially and adversely affect the condition (financial or
other) or operations of The Money Store Inc. or its properties or
might have consequences that would materially and adversely
affect its performance hereunder or under any Subservicing
Agreement;
(ix) The statements contained in the Registration
Statement which describe The Money Store Inc. or matters or
activities for which The Money Store Inc. is responsible in
accordance with the Registration Statement, this Agreement and
all documents referred to therein or delivered in connection
therewith, or which are attributable to The Money Store Inc.
therein are true and correct in all material respects, and the
Registration Statement does not contain any untrue statement of a
material fact with respect to The Money Store Inc. and does not
omit to state a material fact necessary to make the statements
contained therein with respect to The Money Store Inc. not
misleading. The Money Store Inc. is not aware that the
Registration Statement contains any untrue statement of a
material fact or omits to state any material fact necessary to
make the statements contained therein not misleading. There is no
fact peculiar to The Money Store Inc. or the Mortgage Loans and
known to The Money Store Inc. that materially adversely affects
or in the future may (so far as The Money Store Inc. can now
reasonably foresee) materially adversely affect The Money Store
Inc. or the Mortgage Loans or the ownership interests therein
represented by the Certificates that has not been set forth in
the Registration Statement;
(x) Each Originator received fair consideration
and reasonably equivalent value in exchange for the sale of the
interest in the Initial Mortgage Loans, and will receive fair
consideration and reasonably equivalent value in exchange for the
sale of the interest in the Subsequent Mortgage Loans, evidenced
by the Notes and the Certificates;
(xi) No Originator sold any interest in any
Initial Mortgage Loan, and no Originator will sell any interest
in any Subsequent Mortgage Loan, evidenced by the Notes and the
Certificates, as provided in the Agreements, with any intent to
hinder, delay or defraud any of its respective creditors;
(xii) The Originators are solvent and the
Originators will not be rendered insolvent as a result of the
sale of the Mortgage Loans to the Trust Fund or the sale of the
Notes or the Certificates; and
(xiii) No Noteholder or Certificateholder is
subject to state licensing requirements solely by virtue of
holding the Notes or the Certificates.
(b) Each Originator hereby represents and warrants to the
Noteholders and the Certificateholders, the Trustee and the Co-Trustee as of the
Closing Date:
(i) Such Originator is a corporation duly
organized, validly existing, and in good standing under the laws
of the jurisdiction of its incorporation and, except as set forth
below, has all licenses necessary to carry on its business as now
being conducted and is licensed, qualified and in good standing
in each Mortgaged Property State if the laws of such state
require licensing or qualification in order to conduct business
of the type conducted by such Originator and perform its
obligations hereunder; such Originator has corporate power and
authority to execute and deliver this Agreement and the
Subservicing Agreement to which it is a party and to perform in
accordance herewith and therewith; the execution, delivery and
performance of this Agreement and the Subservicing Agreement to
which it is a party (including all instruments of transfer to be
delivered pursuant to this Agreement and the Subservicing
Agreement to which it is a party) by such Originator and the
consummation of the transactions contemplated hereby and thereby
have been duly and validly authorized by all necessary corporate
action; this Agreement and the Subservicing Agreement to which it
is a party evidences the valid, binding and enforceable
obligation of such Originator; such Originator is a Permitted
Transferee; and all requisite corporate action has been taken by
such Originator to make this Agreement and the Subservicing
Agreement to which it is a party valid, binding and enforceable
upon such Originator in accordance with the respective terms of
each such agreement, subject to the effect of bankruptcy,
insolvency, reorganization, moratorium and other similar laws
relating to or affecting creditors' rights generally or the
application of equitable principles in any proceeding, whether at
law or in equity, none of which will affect the ownership of the
Mortgage Loans by the Trustee, as trustee, or the Co-Trustee, as
the case may be.
(ii) No approval of the transactions contemplated
by this Agreement and the Subservicing Agreement to which it is a
party from any state or federal regulatory authority having
jurisdiction over such Originator is required or, if required,
such approval has been or will, prior to the Closing Date, be
obtained;
(iii) The consummation of the transactions
contemplated by this Agreement and the Subservicing Agreement to
which it is a party will not result in the breach of any terms or
provisions of the certificate of incorporation or by-laws of such
Originator or result in the breach of any term or provision of,
or conflict with or constitute a default under or result in the
acceleration of any obligation under, any material agreement,
indenture or loan or credit agreement or other material
instrument to which such Originator or its property is subject,
or result in the violation of any law, rule, regulation, order,
judgment or decree to which such Originator or its property is
subject;
(iv) Such Originator is not in default with
respect to any order or decree of any court or any order,
regulation or demand of any federal, state, municipal or
governmental agency, which default might have consequences that
would materially and adversely affect the condition (financial or
other) or operations of such Originator or its properties or
might have consequences that would materially and adversely
affect its performance hereunder or under the Subservicing
Agreement to which it is a party;
(v) Except as set forth on Schedule I, there is no
action, suit, proceeding or investigation pending or, to the best
of such Originator's knowledge, threatened against such
Originator which, either in any one instance or in the aggregate,
may result in any material adverse change in the business,
operations, condition (financial or other), properties or assets
of such Originator or in any material impairment of the right or
properties or assets of such Originator to carry on its business
substantially as now conducted, or in any material liability on
the part of such Originator or which would draw into question the
validity of this Agreement or the Subservicing Agreement to which
it is a party or the Mortgage Loans or of any action taken or to
be taken in connection with the obligations of such Originator
contemplated herein, or which would be likely to impair
materially the ability of such Originator to perform under the
terms of this Agreement or the Subservicing Agreement to which it
is a party;
(vi) Neither this Agreement or the Subservicing
Agreement to which it is a party nor any statement, report or
other document furnished or to be furnished pursuant to this
Agreement or the Subservicing Agreement to which it is a party or
in connection with the transactions contemplated hereby or
thereby contains any untrue statement of a material fact or omits
to state any material fact necessary to make the statements
contained herein or therein not misleading;
(vii) The statements contained in the Registration
Statement which describe such Originator or matters or activities
for which such Originator is responsible in accordance with the
Registration Statement, this Agreement and all documents referred
to therein or delivered in connection therewith, or which are
attributable to such Originator therein are true and correct in
all material respects, and the Registration Statement does not
contain any untrue statement of a material fact with respect to
such Originator or the Mortgage Loans and does not omit to state
a material fact necessary to make the statements contained
therein with respect to such Originator or the Mortgage Loans not
misleading. Such Originator is not aware that the Registration
Statement contains any untrue statement of a material fact or
omits to state any material fact necessary to make the statements
contained therein not misleading. There is no fact peculiar to
such Originator or the Mortgage Loans and known to such
Originator that materially and adversely affects or in the future
may (so far as such Originator can now reasonably foresee)
materially and adversely affect such Originator or the Mortgage
Loans or the ownership interests therein represented by the
Certificates that has not been set forth in the Registration
Statement;
(viii) Upon the receipt of each Trustee's Mortgage
File by the Trustee (or, with respect to the FHA Loans, the
Custodian on behalf of the Co-Trustee) under this Agreement, the
Trustee (or, with respect to the FHA Loans, the Co-Trustee) will
have good and marketable title on behalf of the related Trust
Fund to each Mortgage Loan and such other items comprising the
corpus of the related Trust Fund free and clear of any lien
(other than liens which will be simultaneously released);
(ix) All actions, approvals, consents, waivers,
exemptions, variances, franchises, orders, permits,
authorizations, rights and licenses required to be taken, given
or obtained, as the case may be, by or from any federal, state or
other governmental authority or agency (other than any such
actions, approvals, etc. under any state securities laws, real
estate syndication or "Blue Sky" statutes, as to which such
Originator makes no such representation or warranty), that are
necessary or advisable in connection with the purchase and sale
of the Notes and the Certificates and the execution and delivery
by such Originator of the documents to which it is a party, have
been duly taken, given or obtained, as the case may be, are in
full force and effect on the date hereof, are not subject to any
pending proceedings or appeals (administrative, judicial or
otherwise) and either the time within which any appeal therefrom
may be taken or review thereof may be obtained has expired or no
review thereof may be obtained or appeal therefrom taken, and are
adequate to authorize the consummation of the transactions
contemplated by this Agreement and the Subservicing Agreement to
which it is a party and the other documents on the part of such
Originator and the performance by such Originator of its
obligations under this Agreement and the Subservicing Agreement
to which it is a party and such of the other documents to which
it is a party;
(x) The transfer, assignment and conveyance of the
Mortgage Notes and the Mortgages by the Originators pursuant to
this Agreement are not or, with respect to the Subsequent
Mortgage Loans, will not be, subject to the bulk transfer laws or
any similar statutory provisions in effect in any applicable
jurisdiction;
(xi) The origination and collection practices used
by each Originator and the primary servicer with respect to each
Mortgage Note and Mortgage relating to the Initial Mortgage Loans
have been, and the origination and collection practices to be
used by each Originator and the primary servicer with respect to
each Mortgage Note and Mortgage relating to the Subsequent
Mortgage Loans will be, in all material respects legal, proper,
prudent and customary in the second mortgage origination and
servicing business;
(xii) Each Initial Mortgage Loan was selected, and
each Subsequent Mortgage Loan will be selected, from among the
existing residential first, second and third mortgage loans in
the respective Originator's portfolio at the date hereof or, in
the case of the Subsequent Mortgage Loans, at the related
Subsequent Cut-off Date, in a manner not designed to adversely
affect the Noteholders and the Certificateholders;
(xiii) Such Originator does not believe, nor does
it have any reason or cause to believe, that it cannot perform
each and every covenant contained in this Agreement and the
Subservicing Agreement to which it is a party;
(xiv) Such Originator received fair consideration
and reasonably equivalent value or, in the case of the Subsequent
Mortgage Loans, will receive fair consideration and reasonably
equivalent value, in exchange for the sale of the interest in the
Mortgage Loans evidenced by the Certificates;
(xv) Such Originator did not sell or, in the case
of the Subsequent Mortgage Loans, will not sell, any interest in
any Mortgage Loan evidenced by the Notes or the Certificates with
any intent to hinder, delay or defraud any of its respective
creditors;
(xvi) Such Originator is solvent, and such
Originator will not be rendered insolvent as a result of the sale
of the Mortgage Loans to the Trust Fund or the sale of the Notes
or the Certificates;
(xvii) No Noteholder or Certificateholder is
subject to state licensing requirements solely by virtue of
holding the Notes or the Certificates;
(xviii) The Subservicing Agreement to which the
Originator is a party conforms to the requirements for a
Subservicing Agreement contained in this Agreement;
(xix) Each FHA Loan was selected from among the
existing FHA- insured Title I loans in such Originator's
portfolio at the date hereof in a manner not designed to
adversely affect the Noteholders or the Certificateholders; and
(xx) Each Originator of an FHA Loan is authorized
and approved by the FHA for participation in the FHA Title I loan
program and holds a valid Contract of Insurance from the FHA for
such purpose.
Section 3.02 INDIVIDUAL MORTGAGE LOANS.
Each Originator hereby represents and warrants to the Trustee,
the Co-Trustee; the Noteholders and the Certificateholders, with respect to each
Initial Mortgage Loan, as of the Closing Date and, with respect to each
Subsequent Mortgage Loan, as of the related Subsequent Transfer Date:
(a) The information with respect to each Mortgage
Loan set forth in the Mortgage Loan Schedule is true and correct;
(b) All of the original or certified documentation
set forth in Section 2.04 (including all material documents
related thereto) has been or will be delivered to the Trustee or
to the Custodian on the Closing Date or, with respect to the
Subsequent Mortgage Loans, on the related Subsequent Transfer
Date, or as otherwise provided in Section 2.04;
(c) Each Initial Mortgage Loan being transferred
to the Trust Fund is, and each Subsequent Mortgage Loan to be
transferred will be, a Qualified Mortgage;
(d) Each Mortgaged Property (other than the
Multifamily Properties) is improved by a Residential Dwelling,
which, to the best of the Originator's knowledge, does not
include cooperatives or mobile homes attached to a foundation or
otherwise and does not constitute other than real property under
state law; provided, however, that up to $_________ aggregate
principal balance of Mortgage Loans may be secured by Mortgaged
Properties that are cooperatives or mobile homes;
(e) Each Initial Mortgage Loan has been, and each
Subsequent Mortgage Loan will be, originated by an Originator
except as otherwise provided in clause (w) below, is being, or
with respect to the Subsequent Mortgage Loans, will be, serviced
by the Servicer or one or more Subservicers and, with respect to
each Initial Mortgage Loan originated by an Originator, there is,
and with respect to each Subsequent Mortgage Loan, there will be,
only one originally executed Mortgage Note not stamped as a
duplicate copy with respect to each such Mortgage Loan;
(f) The Mortgage Note with respect to each Initial
Mortgage Loan bears, and with respect to each Subsequent Mortgage
Loan will bear, a fixed Mortgage Interest Rate which rate shall
at least equal the sum of (i) the Weighted Average Remittance
Rate, (ii) the rate used in calculating the Servicing Fee and
(iii) the rate used in calculating the Contingency Fee; provided,
however, that if the related Mortgagor pays the FHA Insurance
Premium as a separate amount in addition to the Monthly Payment,
such extra amount shall be sufficient to pay the related FHA
Insurance Premium;
(g) Each Mortgage Note relating to the Mortgage
Loans will provide for a schedule of substantially level and
equal Monthly Payments which are, if timely paid, sufficient to
fully amortize the principal balance of such Mortgage Note on or
before its maturity date;
(h) Each Mortgage is, with respect to the Initial
Mortgage Loans, and will be with respect to the Subsequent
Mortgage Loans, a valid and subsisting first or second lien of
record on the Mortgaged Property (except that the Mortgages
relating to no more than _._% of the Mortgage Loans measured by
Pool Principal Balances as of the Cut-Off Date may be more junior
liens) subject, in the case of any second or more junior Mortgage
Loan, only to any applicable Prior Liens on such Mortgaged
Property and subject in all cases to the exceptions to title set
forth in the title insurance policy or the other evidence of
title enumerated in Section 2.04(d), with respect to the related
Mortgage Loan, which exceptions are generally acceptable to
banking institutions in connection with their regular mortgage
lending activities, and such other exceptions to which similar
properties are commonly subject and which do not individually, or
in the aggregate, materially and adversely affect the benefits of
the security intended to be provided by such Mortgage;
(i) Immediately prior to the transfer and
assignment herein contemplated, the Originator held good and
indefeasible title to, and was the sole owner of, each Mortgage
Loan conveyed by the Originator subject to no liens, charges,
mortgages, encumbrances or rights of others except as set forth
in Section 3.02(h) or other liens which will be released
simultaneously with such transfer and assignment; and immediately
upon the transfer and assignment herein contemplated, the Trustee
(or, with respect to the FHA Loans, the Co-Trustee) will hold
good and indefeasible title, to, and be the sole owner of, each
Mortgage Loan subject to no liens, charges, mortgages,
encumbrances or rights of others except as set forth in Section
3.02(h) or other liens which will be released simultaneously with
such transfer and assignment;
(j) As of the Cut-Off Date, no Initial Mortgage
Loan is __ days or more delinquent in payment and, except as
provided in the next sentence, no Initial Mortgage Loan has been
delinquent __ days or more as measured at the end of any month
during the __ months immediately preceding the Cut-Off Date. As
of the related Subsequent Cut-Off Date, no Subsequent Mortgage
Loan shall be __ or more days delinquent;
(k) To the best of the Originator's knowledge,
there is no delinquent tax or assessment lien on any Mortgaged
Property, and each Mortgaged Property is free of material damage
and is in good repair;
(l) The Mortgage Loan is not subject to any right
of rescission, set-off, counterclaim or defense, including the
defense of usury, nor will the operation of any of the terms of
the Mortgage Note or the Mortgage, or the exercise of any right
thereunder, render either the Mortgage Note or the Mortgage
unenforceable in whole or in part, or subject to any right of
rescission, set-off, counterclaim or defense, including the
defense of usury, and no such right of rescission, set-off,
counterclaim or defense has been asserted with respect thereto;
(m) [Reserved];
(n) Each Mortgage Loan at the time it was made
complied in all material respects with applicable state and
federal laws and regulations, including, without limitation,
usury, equal credit opportunity, disclosure and recording laws;
(o) With respect to each Mortgage Loan with an
original principal balance greater than $______ other than any
Initial Mortgage Loan which was not originated by an Originator
and other than the FHA Loans, a lender's title insurance policy,
issued in standard American Land Title Association, California
Land Title Association, New York Board of Title Underwriters
form, or other form acceptable in a particular jurisdiction, by a
title insurance company authorized to transact business in the
state in which the related Mortgaged Property is situated,
together with a condominium endorsement, if applicable, in an
amount at least equal to the original principal balance of such
Mortgage Loan insuring the mortgagee's interest under the related
Mortgage Loan as the holder of a valid first or second mortgage
lien of record on the real property described in the Mortgage,
subject only to exceptions of the character referred to in
Section 3.02(h) above, or, with respect to any Mortgage Loan with
an original principal balance less than or equal to $______ or
any Mortgage Loan which was not originated by an Originator
(other than the FHA Loans), some other evidence of the status of
title, or other evidence of title as enumerated in Section
2.04(d), was effective on the date of the origination of such
Mortgage Loan, and, as of the Closing Date, such policy will be
valid and thereafter such policy shall continue in full force and
effect;
(p) The improvements upon each Mortgaged Property
are covered by a valid and existing hazard insurance policy with
a generally acceptable carrier that provides for fire and
extended coverage representing coverage described in Sections
4.07 and 4.08;
(q) If the Mortgaged Property is in an area
identified in the Federal Register by the Federal Emergency
Management Agency as having special flood hazards, a flood
insurance policy is in effect with respect to such Mortgaged
Property with a generally acceptable carrier in an amount
representing coverage described in Sections 4.07 and 4.08;
(r) Each Mortgage and Mortgage Note is the legal,
valid and binding obligation of the maker thereof and is
enforceable in accordance with its terms, except only as such
enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the
enforcement of creditors' rights generally and by general
principles of equity (whether considered in a proceeding or
action in equity or at law), none of which will prevent the
ultimate realization of the security provided by the Mortgage,
and all parties to each Mortgage Loan had full legal capacity to
execute all Mortgage Loan documents and convey the estate therein
purported to be conveyed;
(s) The Servicer, at the direction of the related
Originator, has caused and will cause to be performed any and all
acts required to be performed to preserve the rights and remedies
of the Trustee and the Co-Trustee in any insurance policies
applicable to the Mortgage Loans including, without limitation,
any necessary notifications of insurers, assignments of policies
or interests therein, and establishments of co-insured, joint
loss payee and mortgagee rights in favor of the Trustee and the
Co- Trustee, and the Originator of any FHA Loan has the authority
and power to transfer to the Co-Trustee the FHA Reserve Amount
relating to the Mortgage Loans;
(t) No more than __% of the Principal Balances of
the Initial Mortgage Loans are secured by Mortgaged Properties
located within any single zip code area;
(u) Each original Mortgage was recorded, and all
subsequent assignments of the original Mortgage have been
recorded in the appropriate jurisdictions wherein such
recordation is necessary to perfect the lien thereof as against
creditors of the Originator (or, subject to Section 2.04 hereof,
are in the process of being recorded);
(v) Each Mortgage Loan conforms, and all such
Mortgage Loans in the aggregate conform, to the description
thereof set forth in the Registration Statement;
(w) The Mortgage Loans were originated or were
purchased and re-underwritten, by the Originators in accordance
with the Representative's underwriting criteria set forth in the
Registration Statement;
(x) (i) Approximately __._% and __% of the Initial
Mortgage Loans (measured by outstanding principal balance as of
the Closing Date) were FHA Loans and Conventional Mortgage Loans,
respectively;
(y) Except with respect to _._%, _._% and __% of
the Initial Mortgage Loans (measured by outstanding principal
balance as of the Closing Date), each Initial Mortgage Loan is
secured by a Single-Family, Owner Occupied Mortgaged Property;
and, when measured by outstanding principal balance as of the
Closing Date, approximately _._% of the Initial Mortgage Loans
are secured by vacation homes, secondary residences, or
investment properties, _._% of the Initial Mortgage Loans are
secured by individual units in Low-Rise Condominiums,
approximately _._% of the Initial Mortgage Loans are secured by
Two-, Three- or Four-Family Houses, and none of the Initial
Mortgage Loans are secured by individual units of other types
including High-Rise Condominiums and Mixed-Use Buildings. No
Initial Mortgage Loan is secured by a mobile home or co-op;
(z) [Reserved]
(aa) The terms of the Mortgage Note and the
Mortgage have not been impaired, altered or modified in any
respect, except by a written instrument which has been recorded,
if necessary, to protect the interest of the Certificateholders
and Noteholders and which has been delivered to the Trustee or,
with respect to the FHA Loans, the Custodian. The substance of
any such alteration or modification is reflected on the Mortgage
Loan Schedule and has been approved by the primary mortgage
guaranty insurer, if any;
(bb) No instrument of release or waiver has been
executed in connection with the Mortgage Loan, and no Mortgagor
has been released, in whole or in part, except in connection with
an assumption agreement which has been approved by the primary
mortgage guaranty insurer, if any, and which has been delivered
to the Trustee or, with respect to the FHA Mortgage Loans, the
Custodian;
(cc) There are no defaults in complying with the
terms of the Mortgage, and all taxes, governmental assessments,
insurance premiums, water, sewer and municipal charges, leasehold
payments or ground rents which previously became due and owing
have been paid, or an escrow of funds has been established in an
amount sufficient to pay for every such item which remains unpaid
and which has been assessed but is not yet due and payable. The
Servicer has not advanced funds, or induced, solicited or
knowingly received any advance of funds by a party other than the
Mortgagor, directly or indirectly, for the payment of any amount
required by the Mortgage, except for interest accruing from the
date of the Mortgage Note or date of disbursement of the Mortgage
Loan proceeds, whichever is greater, to the day which precedes by
one month the Due Date of the first installment of principal and
interest;
(dd) There is no proceeding pending or threatened
for the total or partial condemnation of the Mortgaged Property,
nor is such a proceeding currently occurring, and such property
is undamaged by waste, fire, earthquake or earth movement,
windstorm, flood, tornado or other casualty, so as to affect
adversely the value of the Mortgaged Property as security for the
Mortgage Loan or the use for which the premises were intended;
(ee) [Other than with respect to the FHA Mortgage
Loans, as to which no representation is made, all of the
improvements which were included for the purpose of determining
the appraised value of the Mortgaged Property lie wholly within
the boundaries and building restriction lines of such property,
and no improvements on adjoining properties encroach upon the
Mortgaged Property unless any such improvements are (except with
respect to those Mortgage Loans with original principal balances
which were less than $______ or not originated by a Originator)
stated in the title insurance policy and affirmatively insured; ]
(ff) To the best of the Originator's knowledge
there do not exist any circumstances or conditions with respect
to the Mortgage, the Mortgaged Property, the Mortgagor or the
Mortgagor's credit standing that can be reasonably expected to
cause private institutional investors to regard the Mortgage Loan
as an unacceptable investment, cause the Mortgage Loan to become
delinquent or adversely affect the value or marketability of the
Mortgage Loan;
(gg) [Other than with respect to the FHA Loans, as
to which no representation is made, no improvement located on or
being part of the Mortgaged Property is in violation of any
applicable zoning law or regulation. All inspections, licenses
and certificates required to be made or issued with respect to
all occupied portions of the Mortgaged Property and, with respect
to the use and occupancy of the same, including but not limited
to certificates of occupancy and fire underwriting certificates,
have been made or obtained from the appropriate authorities and
the Mortgaged Property is lawfully occupied under applicable law;
]
(hh) The proceeds of the Mortgage Loan have been
fully disbursed, and there is no obligation on the part of the
mortgagee to make future advances thereunder. Any and all
requirements as to completion of any on-site or off-site
improvements and as to disbursements of any escrow funds therefor
have been complied with. All costs, fees and expenses incurred in
making or closing or recording the Mortgage Loans were paid;
(ii) The related Mortgage Note is not and has not
been secured by any collateral, pledged account or other security
except the lien of the corresponding Mortgage;
(jj) No Initial Mortgage Loan was, and no
Subsequent Mortgage Loan will be, originated under a buydown
plan;
(kk) Except for the related FHA Premium Account in
connection with any FHA Loan, there is no obligation on the part
of the Originator or any other party to make payments in addition
to those made by the Mortgagor;
(ll) No statement, report or other document signed
by the Originator constituting a part of the Mortgage File
contains any untrue statement of fact or omits to state a fact
necessary to make the statements contained therein not
misleading;
(mm) The origination and collection practices used
by the Originator with respect to the Mortgage Note and Mortgage
have been in all respects legal, proper, prudent and customary in
the mortgage lending and servicing business and, in the case of
FHA Loans, legal, proper, prudent and customary in the Title I
mortgage lending and servicing business;
(nn) With respect to each Mortgage constituting a
deed of trust, a trustee, duly qualified under applicable law to
serve as such, has been properly designated and currently so
serves and is named in such Mortgage, and no fees or expenses are
or will become payable by the Noteholders or the
Certificateholders to the trustee under the deed of trust, except
in connection with a trustee's sale after default by the
Mortgagor;
(oo) No Initial Mortgage Loan has, and no
Subsequent Mortgage Loan will have, a shared appreciation
feature, or other contingent interest feature;
(pp) With respect to each Mortgage Loan that is
not a first mortgage loan, the related Prior Lien requires equal
monthly payments, or if it bears an adjustable interest rate, the
monthly payments for the related Prior Lien may be adjusted no
more frequently than monthly; at the time of the origination of
the Mortgage Loan, the related Prior Lien was not __ or more days
delinquent;
(qq) With respect to each Mortgage Loan that is
not a first mortgage loan, either (i) no consent for the Mortgage
Loan is required by the holder of the related Prior Lien or (ii)
such consent has been obtained and is contained in the Mortgage
File;
(rr) Other than with respect to the FHA Loans, as
to which no representation is made, with respect to each Mortgage
Loan that is not a first mortgage loan, to the best of the
Originator's knowledge, the related Prior Lien does not provide
for negative amortization;
(ss) With respect to each Mortgage Loan that is
not a first mortgage loan, the maturity date of the Mortgage Loan
is prior to the maturity date of the related Prior Lien if such
Prior Lien provides for a balloon payment;
(tt) The Mortgaged Property is located in the
State identified in the Mortgage Loan Schedule and consists of a
single parcel of real property with a Residential Dwelling
erected thereon (or, with respect to any Multifamily Loans, a
Multifamily Property erected thereon);
(uu) All parties which have had any interest in
the Mortgage Loan, whether as mortgagee, assignee, pledgee or
otherwise, are (or, during the period in which they held and
disposed of such interest, were) (1) in compliance with any and
all applicable licensing requirements of the laws of the state
wherein the Mortgaged Property is located, and (2)(A) organized
under the laws of such state, or (B) qualified to do business in
such state, or (C) federal savings and loan associations or
national banks having principal offices in such state, or (D) not
doing business in such state;
(vv) The Mortgage contains an enforceable
provision for the acceleration of the payment of the unpaid
principal balance of the Mortgage Loan in the event the related
Mortgaged Property is sold without the prior consent of the
mortgagee thereunder;
(ww) Any future advances made prior to the Cut-Off
Date have been consolidated with the outstanding principal amount
secured by the Mortgage, and the secured principal amount, as
consolidated, bears a single interest rate and single repayment
term reflected on the Mortgage Loan Schedule. The consolidated
principal amount does not exceed the original principal amount of
the Mortgage Loan. The Mortgage Note does not permit or obligate
the Servicer to make future advances to the Mortgagor at the
option of the Mortgagor;
(xx) The related Mortgage contains customary and
enforceable provisions which render the rights and remedies of
the holder thereof adequate for the realization against the
Mortgaged Property of the benefits of the security, including,
(i) in the case of a Mortgage designated as a deed of trust, by
trustee's sale, and (ii) otherwise by judicial foreclosure. There
is no homestead or other exemption available to the Mortgagor
which would materially interfere with the right to sell the
Mortgaged Property at a trustee's sale or the right to foreclose
the Mortgage;
(yy) There is no default, breach, violation or
event of acceleration existing under the Mortgage or the related
Mortgage Note and no event which, with the passage of time or
with notice and the expiration of any grace or cure period, would
constitute a default, breach, violation or event of acceleration;
and neither the Servicer nor the Originator has waived any
default, breach, violation or event of acceleration;
(zz) All parties to the Mortgage Note and the
Mortgage had legal capacity to execute the Mortgage Note and the
Mortgage and each Mortgage Note and Mortgage have been duly and
properly executed by such parties;
(aaa) The Initial Mortgage Loan was not, and the
Subsequent Mortgage Loan will not be, selected for inclusion
under this Agreement from its portfolio of comparable loans,
including, in the case of FHA Loans, comparable Title I loans, on
any basis which would have a material adverse effect on a
Certificateholder or Noteholder;
(bbb) All amounts received after the Cut-Off Date
with respect to the Initial Mortgage Loans have been deposited
and all amounts received after the Subsequent Cut-off Date with
respect to the Subsequent Mortgage Loans will be deposited into
the applicable Principal and Interest Account and are, as of the
Closing Date with respect to the Initial Mortgage Loans, in the
applicable Principal and Interest Account;
(ccc) [With respect to each Mortgage Loan (other
than the FHA Loans) originated by an Originator with an original
principal balance in excess of $______ for which the Originator
conducted a drive-by appraisal pursuant to FHLMC Form 704 or
alternative FNMA Form in connection with the origination thereof,
such deposited Mortgage Loan (i) had an original principal
balance not in excess of $______, and (ii) has a Loan-to-Value
Ratio less than __% and/or an appraisal on FNMA/FHLMC Form 1004
was performed by the related Originator within one year prior to
the origination of such Mortgage Loan];
(ddd) [At the applicable dates of origination of
the Initial Mortgage Loans, (i) approximately __% (measured by
outstanding principal balance as of the Closing Date), had a
Loan-to-Value Ratio which exceeded __._% and (ii) except with
respect to __% of the Initial Mortgage Loans (measured by
outstanding principal balance as of the Closing Date), no Initial
Mortgage Loan had a Loan-to-Value Ratio which exceeded __%];
(eee) Approximately __% of the Initial Mortgage
Loans (measured by outstanding principal balance as of the
Closing Date), had a Debt-to-Income Ratio exceeding __%.
"Debt-to-Income Ratio" is that ratio, stated as a percentage,
which results from dividing a Mortgagor's monthly debt by his
gross monthly income. "Monthly debt" includes (i) the monthly
payment under the Prior Liens (which generally includes an escrow
for real estate taxes), (ii) the related Mortgage Loan Monthly
Payment, (iii) other installment debt service payments,
including, in respect of revolving credit debt, the required
monthly payment thereon, or, if no such payment is specified,
_._% of the balance as of the date of calculation. "Monthly debt"
does not include any of the debt (other than revolving credit
debt) described above that matures within less than __ months
from the date of the calculation;
(fff) At the applicable dates of origination, each
Mortgage Loan had an original term to maturity of no greater than
__ years;
(ggg) Each Subsequent Mortgage Loan will comply
with the representations and warranties respecting Subsequent
Mortgage Loans set forth in Section 3.01(d) of the Insurance
Agreement, which representations and warranties are incorporated
herein;
(hhh) Each Initial Mortgage Loan bears, and each
Subsequent Mortgage Loan will bear, a fixed rate of interest;
(iii) [Reserved];
(jjj) [Reserved];
(kkk) Each Initial FHA Loan is, and each
Subsequent FHA Loan will be, an FHA Title I property improvement
loan (as defined in the FHA Regulations) underwritten in
accordance with applicable FHA requirements and submitted to the
FHA for insurance;
(lll) Each Initial FHA Loan has been, and each
Subsequent FHA Loan will be, submitted to the FHA for insurance
pursuant to the FHA Title I loan program and, except for no more
than __% of the Initial FHA Loans (measured by outstanding
principal balance as of the Closing Date) (the "Non-Acknowledged
FHA Loans"), each Initial FHA Loan has been acknowledged by the
FHA for the FHA Title I loan program; each Non-Acknowledged FHA
Loan will be acknowledged by the FHA within ___ days of the
Closing Date and each Subsequent FHA Loan will be acknowledged by
the FHA within ___ days after the Funding Period;
(mmm) The Reserve Amount with respect to each
Initial FHA Loan will be transferred to the Co-Trustee's FHA
Reserve Account within ___ days after the Closing Date, the
Reserve Amount with respect to each Subsequent FHA Loan will be
transferred to the Co-Trustee's FHA Reserve Account within ___
days after the Funding Period, and the Originators will give the
Trustee, the Co-Trustee and the Rating Agencies prompt notice of
their receipt of confirmation of such transfers;
(nnn) Assuming sufficient coverage remains
available in the Reserve Amount, each Claim filed by the Claims
Administrator with respect to a 90 Day Delinquent FHA Loan will
be honored by the FHA in accordance with the FHA Regulations;
(ooo) [All obligations of the seller or
subcontractor under each Mortgage Loan have been completed in
accordance with the terms of such Mortgage Loans as of the
Closing Date, and no additional goods or services will be, or are
required to be, provided by the seller or subcontractor under the
terms of such Mortgage Loans after the Closing Date. All
improvements and other goods and services provided under each
Mortgage Loan shall have been inspected by the Originator within
the time period and in accordance to the applicable Title I
regulations and prior to the Closing Date, and evidence of such
inspection shall be included in the Mortgage File;]
(ppp) [With respect to each Mortgage Loan that is
a Mortgage loan or retail installment sales contract for goods or
services, no Mortgagor has or will have a claim, counterclaim,
right of rescission, set-off or defense under any express or
implied warranty or otherwise with respect to goods or services
provided under such Mortgage Loan; and]
(qqq) [The Mortgage and the Mortgage Note contain
the entire agreement of the parties and all obligations of the
seller or subcontractor under the related Mortgage Loan, and no
other agreement defines, modifies or expands the obligations of
the seller or subcontractor under the Mortgage Loan.]
Section 3.03 PURCHASE AND SUBSTITUTION.
It is understood and agreed that the representations and
warranties set forth in Sections 3.01 and 3.02 shall survive delivery of the
Notes to the Noteholders and the Certificates to the Certificateholders. Upon
discovery by the Representative, the Servicer, any Subservicer, any Custodian,
the Trustee, the Co-Trustee or the Owner Trustee of a breach of
any of such representations and warranties (or, in the case of any Subsequent
Mortgage Loan, any additional representation or warranty set forth in Section
3.01(d) of the Insurance Agreement) which materially and adversely affects the
value of the Mortgage Loans or the interest of the Noteholders and the
Certificateholders, or which materially and adversely affects the interests of
the Noteholders, or the Certificateholders in the related Mortgage Loan in the
case of a representation and warranty relating to a particular Mortgage Loan
(notwithstanding that such representation and warranty was made to the
Representative's or Originators' best knowledge), the party discovering such
breach shall give prompt written notice to the others. Within 60 days of the
earlier of its discovery or its receipt of notice of any breach of a
representation or warranty, the Representative shall (a) promptly cure such
breach in all material respects, (b) purchase such Mortgage Loan by depositing
in the applicable Principal and Interest Account, on the next succeeding
Determination Date, an amount in the manner specified in Section 2.05(b), or (c)
remove such Mortgage Loan from the Trust Account Property (in which case it
shall become a Deleted Mortgage Loan) and substitute one or more Qualified
Substitute Mortgage Loans, provided such substitution is effected not later than
the date which is two years after the Closing Date or at such later date, if the
Trustee and the Owner Trustee receive an Opinion of Counsel that such
substitution would not result in a material adverse tax event to the Noteholders
or the Certificateholders.
As to any Deleted Mortgage Loan for which the Representative
substitutes a Qualified Substitute Mortgage Loan or Loans, the Servicer shall
effect such substitution by delivering to the Trustee (or, with respect to the
FHA Loans, the Co-Trustee) a certification in the form attached hereto as
Exhibit G, executed by a Servicing Officer and the documents constituting the
Trustee's Mortgage File for such Qualified Substitute Mortgage Loan or Loans.
The Servicer shall deposit in the Principal and Interest
Account all payments received in connection with such Qualified Substitute
Mortgage Loan or Loans after the date of such substitution. Monthly Payments
received with respect to Qualified Substitute Mortgage Loans on or before the
date of substitution will be retained by the Representative on behalf of the
related Originator. The Issuer will own all payments received on the Deleted
Mortgage Loan on or before the date of substitution, and the Representative on
behalf of the Originators shall thereafter be entitled to retain all amounts
subsequently received in respect of such Deleted Mortgage Loan. The Servicer
shall give written notice to the Trustee, the Representative and the Owner
Trustee that such substitution has taken place and shall amend the applicable
Mortgage Loan Schedule to reflect the removal of such Deleted Mortgage Loan from
the terms of this Agreement and the substitution of the Qualified Substitute
Mortgage Loan. Upon such substitution, such Qualified Substitute Mortgage Loan
or Loans shall be subject to the terms of this Agreement in all respects,
including Sections 2.04 and 2.05, and the Representative and the Originator
shall be deemed to have made with respect to such Qualified Substitute Mortgage
Loan or Loans, as of the date of substitution, the covenants, representations
and warranties set forth in Sections 3.01 and 3.02. On the date of such
substitution, the Representative will remit to the Servicer, and the Servicer
will deposit into the Principal and Interest Account an amount equal to the
Substitution Adjustment.
In addition to the cure, purchase and substitution obligation
in Section 2.05 and this Section 3.03, the Representative shall indemnify and
hold harmless the Issuer, the Trustee, the Co-Trustee, the Custodian, the
Noteholders, the Certificateholders and the Owner Trustee against any loss,
damages, penalties, fines, forfeitures, reasonable legal fees and related costs,
judgments and other costs and expenses resulting from any claim, demand, defense
or assertion based on or grounded upon, or resulting from, a breach of the
Representative's or any Originator's representations and warranties contained in
this Agreement. It is understood and agreed that the obligations of the
Representative or any Originator set forth in Sections 2.05 and 3.03 to cure,
purchase or substitute for a defective Mortgage Loan and to indemnify the
Noteholders, the Certificateholders, the Trustee, the Co-Trustee, the Custodian,
and the Owner Trustee as provided in Sections 2.05 and 3.03 constitute the sole
remedies of the Trustee, the Co-Trustee, the Custodian, the Certificate Insurer,
the Noteholders, and the Owner Trustee respecting a breach of the foregoing
representations and warranties.
Any cause of action against any Originator, the Servicer or
the Representative relating to or arising out of the breach of any
representations and warranties made in Sections 2.05, 3.01 or 3.02 shall accrue
as to any Mortgage Loan upon (i) discovery of such breach by any party and
notice thereof to the Representative or notice thereof by the Representative to
the Trustee (and, with respect to the FHA Loans, the Co-Trustee), (ii) failure
by the Representative to cure such breach or purchase or substitute such
Mortgage Loan as specified above, and (iii) demand upon the Representative by
the Trustee (and, with respect to the FHA Loans, the Co-Trustee) for all amounts
payable in respect of such Mortgage Loan.
ARTICLE IV
ADMINISTRATION AND SERVICING OF MORTGAGE LOANS
Section 4.01 DUTIES OF THE SERVICER.
(a) With respect to any Mortgage Note (other
than a Mortgage Note relating to an FHA Loan) released by the Trustee to the
Servicer or to any Subservicer in accordance with the terms of this Agreement,
other than a release or satisfaction pursuant to Section 5.02, prior to such
release, the Trustee shall (i) complete all endorsements in blank so that the
endorsement reads "Pay to the order of ___ ________________, as Trustee under
the Indenture dated as of ________ __, 199_, Series 199_-_" and (ii) complete a
restrictive endorsement that reads "The ________________ is the holder of the
mortgage note for the benefit of the Noteholders and the Certificateholders
under the Indenture dated as of ________ __, 199_, Series 199_-_" with respect
to those Mortgage Notes (other than a Mortgage Note relating to an FHA Loan)
currently endorsed "Pay to the order of holder."
With respect to any Mortgage Note relating to an
FHA Loan released by the Co-Trustee to the Servicer or any Subservicer in
accordance with the terms of this Agreement, other than a release or
satisfaction pursuant to Section 5.02 or a release to the Claims Administrator
pursuant to Section 4.15(b), prior to such release, the Co-Trustee shall (i)
complete all endorsements in blank so that the endorsement reads "Pay to the
order of _________________, as Co-Trustee under the Indenture dated as of
________ __, 199_, Series 199_--" and (ii) complete a restrictive endorsement
that reads "__________ ______ is the holder of the mortgage note for the benefit
of the Noteholders and the Certificateholders under the Indenture dated as of
________ __, 199_, Series 199_-_" with respect to those Mortgage Notes relating
to FHA Loans currently endorsed "Pay to the order of Holder."
(b) The Servicer, as independent contract servicer,
shall service and administer the Mortgage Loans and shall have full power and
authority, acting alone, to do any and all things in connection with such
servicing and administration which the Servicer may deem necessary or desirable
and consistent with the terms of this Agreement. The Servicer may enter into
Subservicing Agreements for any servicing and administration of Mortgage Loans
with any institution which is in compliance with the laws of each state
necessary to enable it to perform its obligations under such Subservicing
Agreement and (x) has (i) been designated an approved Servicer by FHLMC
or FNMA for first and second mortgage loans and (ii) has a net worth of at least
$5,000,000 or (y) is an Originator or another affiliate of the Servicer. Any
such Subservicing Agreement shall be consistent with and not violate the
provisions of this Agreement. The Servicer shall be entitled to terminate any
Subservicing Agreement in accordance with the terms and conditions of such
Subservicing Agreement and to either itself directly service the related
Mortgage Loans or enter into a Subservicing Agreement with a successor
subservicer which qualifies hereunder.
(c) Notwithstanding any Subservicing Agreement, any
of the provisions of this Agreement relating to agreements or arrangements
between the Servicer and Subservicer or reference to actions taken through a
Subservicer or otherwise, the Servicer shall remain obligated and primarily
liable to the Trustee, the Noteholders, the Certificateholders and the Owner
Trustee for the servicing and administering of the Mortgage Loans in accordance
with the provisions of this Agreement without diminution of such obligation or
liability by virtue of such Subservicing Agreements or arrangements or by virtue
of indemnification from the Subservicer and to the same extent and under the
same terms and conditions as if the Servicer alone were servicing and
administering the Mortgage Loans. For purposes of this Agreement, the Servicer
shall be deemed to have received payments on Mortgage Loans when any Subservicer
has received such payments. The Servicer shall be entitled to enter into any
agreement with a Subservicer for indemnification of the Servicer by such
Subservicer, and nothing contained in this Agreement shall be deemed to limit or
modify such indemnification.
(d) Any Subservicing Agreement that may be entered
into and any transactions or services relating to the Mortgage Loans involving a
Subservicer in its capacity as such and not as an originator shall be deemed to
be between the Subservicer and the Servicer alone, and the Trustee, the
Noteholders and the Certificateholders shall not be deemed parties thereto and
shall have no claims, rights, obligations, duties or liabilities with respect to
the Subservicer except as set forth in Section 4.01(e).
(e) In the event the Servicer shall for any reason
no longer be the Servicer (including by reason of a Servicer Default), the
Trustee or its designee shall, subject to Section 10.02 hereof, thereupon assume
all of the rights and obligations of the Servicer under each Subservicing
Agreement that the Servicer may have entered into, unless the Trustee is then
permitted and elects to terminate any Subservicing Agreement in accordance with
its terms. The Trustee, its designee or the successor servicer for the Trustee
shall be deemed to have assumed all of the Servicer's interest therein and to
have replaced the Servicer as a party to each Subservicing Agreement to the same
extent as if the Subservicing Agreements had been assigned to the assuming
party, except that the Servicer shall not thereby be relieved of any liability
or obligations under the Subservicing Agreements. The Servicer at its expense
and without right of reimbursement therefor, shall, upon request of the Trustee,
deliver to the assuming party all documents and records relating to each
Subservicing Agreement and the Mortgage Loans then being serviced and an
accounting of amounts collected and held by it and otherwise use its best
efforts to effect the orderly and efficient transfer of the Subservicing
Agreements to the assuming party.
(f) Consistent with the terms of this Agreement,
the Servicer may waive, modify or vary any term of any Mortgage Loan
or consent to the postponement of strict compliance with any such term or in any
manner grant indulgence to any Mortgagor if in the Servicer's determination such
waiver, modification, postponement or indulgence is not materially adverse to
the interests of the Noteholders or the Certificateholders; provided, however,
that (unless (x) the Mortgagor is in default with respect to the Mortgage Loan,
or such default is, in the judgment of the Servicer, imminent and (y) the
Servicer determines that any modification would not be considered a new mortgage
loan for federal income tax purposes) the Servicer may not permit any
modification with respect to any Mortgage Loan that would change the Mortgage
Interest Rate, defer (subject to Section 4.12), or forgive the payment of any
principal or interest (unless in connection with the liquidation of the related
Mortgage Loan), or extend the final maturity date on such Mortgage Loan. No
costs incurred by the Servicer or any Subservicer in respect of Servicing
Advances shall for the purposes of distributions to the Noteholders or the
Certificateholders be added to the amount owing under the related Mortgage Loan.
Without limiting the generality of the foregoing, the Servicer shall continue,
and is hereby authorized and empowered, to execute and deliver on behalf of the
Trustee; each Noteholder and each Certificateholder, all instruments of
satisfaction or cancellation, or of partial or full release, discharge and all
other comparable instruments, with respect to the Mortgage Loans and with
respect to the Mortgaged Properties. If reasonably required by the Servicer, the
Owner Trustee shall furnish the Servicer with any powers of attorney and other
documents necessary or appropriate to enable the Servicer to carry out its
servicing and administrative duties under this Agreement.
The Servicer, in servicing and administering the
Mortgage Loans, shall employ or cause to be employed procedures
(including collection, foreclosure and REO Property management procedures) and
exercise the same care that it customarily employs and exercises in servicing
and administering mortgage loans for its own account, in accordance with
accepted second mortgage servicing practices (or, in the case of FHA Loans, in
accordance with accepted Title I servicing practices or, in the case of
Multifamily Loans, in accordance with accepted multifamily loan servicing
practices) of prudent lending institutions and giving due consideration to the
Noteholders' and Certificateholders' reliance on the Servicer.
(g) On and after such time as the Trustee and
the Co-Trustee receive the resignation of, or notice of the removal of, the
Servicer from its rights and obligations under this Agreement, and with respect
to resignation pursuant to Section 9.04, after receipt of the Opinion of Counsel
required pursuant to Section 9.04, the Trustee or its designee (or, with
respect to the FHA Loans, the Co-Trustee or its designee) shall assume all of
the rights and obligations of the Servicer, subject to Section 10.02 hereof. The
Servicer shall, upon request of the Trustee but at the expense of the Servicer,
deliver to the Trustee (or, with respect to the FHA Loans, the Custodian) all
documents and records (including computer tapes and diskettes) relating to the
Mortgage Loans and an accounting of amounts collected and held by the Servicer
and otherwise use its best efforts to effect the orderly and efficient transfer
of servicing rights and obligations to the assuming party.
(h) In the event that any tax is imposed on the
Trust Fund, such tax shall be charged against amounts otherwise distributable to
the Holders of the GP Interest.
(i) After the Closing Date, the Servicer shall
confirm, or cause to be confirmed, whether all on-site or off-site improvements
on the Mortgaged Properties relating to FHA Loans have been completed and, if
such improvements have not been completed, to submit the appropriate filings to
the FHA.
Section 4.02 LIQUIDATION OF MORTGAGE LOANS.
In the event that any payment due under any Mortgage Loan and
not postponed pursuant to Section 4.01 is not paid when the same becomes due and
payable, or in the event the Mortgagor fails to perform any other covenant or
obligation under the Mortgage Loan and such failure continues beyond any
applicable grace period, the Servicer shall take such action as it shall deem to
be in the best interests of the Noteholders and the Certificateholders. The
Servicer shall foreclose upon or otherwise comparably effect the ownership in
the name of the Owner Trustee for the benefit of the Noteholders and the
Certificateholders, as the case may be, of Mortgaged Properties relating to
defaulted Mortgage Loans as to which no satisfactory arrangements can be made
for collection of delinquent payments in accordance with the provisions of
Section 4.10 and, in the case of FHA Loans, for which a Claim is not required to
be submitted to the FHA pursuant to Section 4.15. In connection with such
foreclosure or other conversion, the Servicer shall exercise collection and
foreclosure procedures with the same degree of care and skill in its exercise or
use as it would exercise or use under the circumstances in the conduct of its
own affairs. The Servicer shall take into account the existence of any hazardous
substances, hazardous wastes or solid wastes, as such terms are defined in the
Comprehensive Environmental Response Compensation and Liability Act, the
Resource Conservation and Recovery Act of 1976, or other federal, state or local
environmental legislation, on a Mortgaged Property in determining whether to
foreclose upon or otherwise comparably convert the ownership of a Mortgaged
Property. Any amounts advanced in connection with such foreclosure or other
action shall constitute "Servicing Advances."
After a Mortgage Loan has become a Liquidated Mortgage Loan,
the Servicer shall promptly prepare and forward to the Trustee and the Owner
Trustee, a Liquidation Report, in the form attached hereto as Exhibit K ,
detailing the Liquidation Proceeds received from the Liquidated Mortgage Loan,
expenses incurred with respect thereto, and any Realized Loss incurred in
connection therewith.
Section 4.03 ESTABLISHMENT OF PRINCIPAL AND INTEREST
ACCOUNTS; DEPOSITS IN PRINCIPAL AND INTEREST ACCOUNT.
(a) The Servicer shall cause to be established and
maintained one or more Principal and Interest Accounts, in one or more
Designated Depository Institutions, in the form of time deposit or demand
accounts, which may be interest-bearing or such accounts may be trust accounts
wherein the moneys therein are invested in Permitted Instruments, titled "The
Money Store Inc., in trust for the registered holders of The Money Store Asset
Backed Certificates and Asset Backed Notes, Series 199_-_, and various
Mortgagors." Each such Principal and Interest Account shall be insured by the
BIF or SAIF administered by the FDIC to the maximum extent provided by law. The
creation of any Principal and Interest Account shall be evidenced by a letter
agreement in the form of Exhibit B hereto.
A copy of such letter agreement shall be
furnished to the Trustee and the Owner Trustee.
(b) The Servicer and each Subservicer shall deposit
without duplication (within 24 hours of receipt thereof) in the applicable
Principal and Interest Account and retain therein:
(i) all payments received after the Cut-Off Date
on account of principal on the Mortgage Loans, including all
Excess Payments, Principal Prepayments and Curtailments received
after the Cut-Off Date and all payments in respect of the
applicable FHA Insurance Premium;
(ii) all payments received after the Cut-Off Date
on account of interest on the Mortgage Loans;
(iii) all Net Liquidation Proceeds received with
respect to the Mortgage Loans;
(iv) all Insurance Proceeds received with respect
to the Mortgage Loans, (other than amounts to be applied to the
restoration or repair of the related Mortgaged Property, or to be
released to the Mortgagor in accordance with customary second
mortgage servicing procedures);
(v) all Released Mortgaged Property Proceeds
received with respect to the Mortgage Loans;
(vi) any amounts paid in connection with the
purchase of any Mortgage Loan, and the amount of any Substitution
Adjustment received with respect to the Mortgage Loans paid
pursuant to Sections 2.05 and 3.03;
(vii) any amount required to be deposited in the
Principal and Interest Account pursuant to Section 4.04, 4.08,
4.10, 7.09, 7.10 or 11.01; and
(viii) the amount of any credit life insurance
premium refund which is not due to the related Mortgagor.
(c) The foregoing requirements for deposit in the
Principal and Interest Account shall be exclusive, it being understood and
agreed that, without limiting the generality of the foregoing, the Servicing Fee
and the Contingency Fee with respect to each Mortgage Loan, and payments in the
nature of prepayment penalties or premiums, late payment charges and assumption
fees, to the extent received and permitted by Sections 5.01 and 5.03, together
with the difference between any Liquidation Proceeds and the related Net
Liquidation Proceeds, need not be deposited by the Servicer in the Principal and
Interest Account.
(d) Any interest earnings on funds held in the
Principal and Interest Account paid by a Designated Depository Institution shall
be for the account of the Servicer and may only be withdrawn from the Principal
and Interest Account by the Servicer immediately following its monthly
remittance of the Total Distribution Amount to the Trustee. Any reference herein
to amounts on deposit in the Principal and Interest Account shall refer to
amounts net of such investment earnings.
Section 4.04 PERMITTED WITHDRAWALS FROM THE PRINCIPAL AND
INTEREST ACCOUNT.
The Servicer shall withdraw funds from the Principal and
Interest Account for the following purposes:
(a) to effect the remittances required by Section
7.05;
(b) to reimburse itself for any accrued unpaid
Servicing Fees, unpaid Contingency Fees, unreimbursed Monthly
Advances and for unreimbursed Servicing Advances to the extent
that funds relating to such amount have been deposited in the
applicable Principal and Interest Account (and not netted from
Monthly Payments received). The Servicer's right to reimbursement
for unpaid Servicing Fees, unpaid Contingency Fees and, except as
provided in the following sentence, Servicing Advances and
Monthly Advances shall be limited to Liquidation Proceeds,
Released Mortgaged Property Proceeds, Insurance Proceeds and such
other amounts as may be collected by the Servicer from the
Mortgagor or otherwise relating to the Mortgage Loan in respect
of which such unreimbursed amounts are owed. The Servicer's right
to reimbursement for Servicing Advances and Monthly Advances in
excess of such amounts shall be limited to any late collections
of interest received on the Mortgage Loans generally, including
Liquidation Proceeds, Released Mortgaged Property Proceeds and
Insurance Proceeds and any other amounts which would otherwise be
distributed to the holder of the GP Interest; PROVIDED, HOWEVER,
that the Servicer's right to such reimbursement pursuant hereto
shall be subordinate to the rights of the Noteholders and
Certificatesholders;
(c) to withdraw any amount received from a
Mortgagor that is recoverable and sought to be recovered as a
voidable preference by a trustee in bankruptcy pursuant to the
United States Bankruptcy Code in accordance with a final,
nonappealable order of a court having competent jurisdiction;
(d) (i) to make investments in Permitted
Instruments and (ii) to pay to itself, as permitted by Section
4.03(d), interest paid in respect of Permitted Instruments or by
a Designated Depository Institution on funds deposited in the
applicable Principal and Interest Account;
(e) to withdraw any funds deposited in the
applicable Principal and Interest Account that were not required
to be deposited therein or were deposited therein in error;
(f) (i) to pay itself servicing compensation
pursuant to Section 5.03 hereof; and
(g) to clear and terminate each Principal and
Interest Account upon the termination of this Agreement and to
pay any amounts remaining therein in accordance with Section
11.01.
So long as no Servicer Default shall have
occurred and be continuing, and consistent with any requirements of the Code,
the Principal and Interest Account shall either be maintained as an
interest-bearing accounts meeting the requirements set forth in Section 4.03(a),
or the funds held therein may be invested by the Servicer (to the extent
practicable) in Permitted Instruments. In either case, funds in the Principal
and Interest Account must be available for withdrawal without penalty, and any
Permitted Instruments must mature not later than the Business Day immediately
preceding the Determination Date next following the date of such investment
(except that if such Permitted Instrument is an obligation of the institution
that maintains such account, then such Permitted Instrument shall mature not
later than such Determination Date) and shall not be sold or disposed of prior
to its maturity. All Permitted Instruments must be held by or registered in the
name of "The Money Store Inc. in trust for the registered holders of The Money
Store ____ Asset Backed Notes and Certificates, Series 199_-_." All interest or
other earnings from funds on deposit in the Principal and Interest Account (or
any Permitted Instruments thereof) shall be the exclusive property of the
Servicer, and may be withdrawn from either Principal and Interest Account
pursuant to clause (d)(ii) above. The amount of any losses incurred in
connection with the investment of funds in the applicable Principal and Interest
Account in Permitted Instruments shall be deposited in the applicable Principal
and Interest Account by the Servicer from its own funds immediately as realized
without reimbursement therefor.
Section 4.05 PAYMENT OF TAXES, INSURANCE AND OTHER CHARGES.
With respect to each Mortgage Loan, the Servicer shall
maintain accurate records reflecting fire and hazard insurance coverage.
With respect to each Mortgage Loan which is a first Mortgage
Loan, or as to which the Servicer has advanced the outstanding principal balance
of any Prior Lien pursuant to Section 4.14 or as to which the Servicer maintains
escrow accounts, the Servicer shall maintain accurate records reflecting the
status of ground rents, taxes, assessments, water rates and other charges which
are or may become a lien upon the Mortgaged Property and the status of primary
mortgage guaranty insurance premiums, if any, and fire and hazard insurance
coverage and shall obtain, from time to time, all bills for the payment of such
charges (including renewal premiums) and shall effect payment thereof prior to
the applicable penalty or termination date and at a time appropriate for
securing maximum discounts allowable, employing for such purpose deposits of the
Mortgagor in any escrow account which shall have been estimated and accumulated
by the Servicer in amounts sufficient for such purposes, as allowed under the
terms of the Mortgage (provided, however, that to the extent the Servicer
advances its own funds, such advances shall constitute "Servicing Advances"). To
the extent that a Mortgage does not provide for escrow payments, the Servicer
shall determine that any such payments are made by the Mortgagor at the time
they first become due. Notwithstanding anything contained herein to the
contrary, the Servicer may choose not to make the payments described above on a
timely basis, provided that collections on the related Mortgage Loan that are
required to be remitted to the Trust Fund would not be reduced, as a result of
such failure to timely pay, from the amount that would otherwise be remitted to
the Trust Fund; provided further, however, that this provision shall not have
the effect of permitting the Servicer to take, or fail to take, any action in
respect of the payments described herein that would adversely affect the
interest of the Trust Fund in any Mortgaged Property.
Section 4.06 TRANSFER OF ACCOUNTS.
The Servicer may, upon written prior notice to the Trustee and
the Certificate Insurer, transfer the Principal and Interest Account to a
different Designated Depository Institution.
Section 4.07 MAINTENANCE OF HAZARD INSURANCE.
The Servicer shall cause to be maintained, subject to the
provisions of Section 4.08 hereof, fire and hazard insurance with extended
coverage customary in the area where the Mortgaged Property is located, in an
amount which is at least equal to the least of (a) the outstanding principal
balance owing on the Mortgage Loan and any Prior Lien, (b) the full insurable
value of the premises securing the Mortgage Loan and (c) the minimum amount
required to compensate for damage or loss on a replacement cost basis. If the
Mortgaged Property is in an area identified in the Federal Register by the Flood
Emergency Management Agency as having special flood hazards (and such flood
insurance has been made available) the Servicer will cause to be purchased a
flood insurance policy with a generally acceptable insurance carrier, in an
amount representing coverage not less than the least of (i) the outstanding
principal balance of the Mortgage Loan and any Prior Lien, (ii) the full
insurable value of the Mortgaged Property, or (iii) the maximum amount of
insurance available under the National Flood Insurance Act of 1968, as amended.
The Servicer shall also maintain, to the extent such insurance is available, on
REO Property, fire and hazard insurance in the amounts described above,
liability insurance and, to the extent required and available under the National
Flood Insurance Act of 1968, as amended, flood insurance in an amount equal to
that required above. Any amounts collected by the Servicer under any such
policies (other than amounts to be applied to the restoration or repair of the
Mortgaged Property, or to be released to the Mortgagor in accordance with
customary second mortgage servicing procedures) shall be deposited in the
applicable Principal and Interest Account, subject to withdrawal pursuant to
Section 4.04. It is understood and agreed that no earthquake or other additional
insurance need be required by the Servicer of any Mortgagor or maintained on REO
Property, other than pursuant to such applicable laws and regulations as shall
at any time be in force and as shall require such additional insurance. All
policies required hereunder shall be endorsed with standard mortgagee clauses
with losses payable to the Servicer.
Section 4.08 MAINTENANCE OF MORTGAGE IMPAIRMENT
INSURANCE POLICY.
In the event that the Servicer shall obtain and maintain a
blanket policy insuring against fire and hazards of extended coverage on all of
the Mortgage Loans, then, to the extent such policy names the Trustee or the
Co-Trustee on behalf of the Noteholders and the Certificateholders as loss payee
and provides coverage in an amount equal to the aggregate unpaid principal
balance on the Mortgage Loans without co-insurance, and otherwise complies with
the requirements of Section 4.07, the Servicer shall be deemed conclusively to
have satisfied its obligations with respect to fire and hazard insurance
coverage under Section 4.07, it being understood and agreed that such blanket
policy may contain a deductible clause, in which case the Servicer shall, in the
event that there shall not have been maintained on the related Mortgaged
Property a policy complying with Section 4.07, and there shall have been a loss
which would have been covered by such policy, deposit in the applicable
Principal and Interest Account from the Servicer's own funds the difference, if
any, between the amount that would have been payable under a policy complying
with Section 4.07 and the amount paid under such blanket policy. Upon the
request of the Owner Trustee, the Trustee or the Co-Trustee, the Servicer shall
cause to be delivered to the Owner Trustee, the Trustee or the Co-Trustee, as
the case may be, a certified true copy of such policy. The current issuer of
such policy is Lloyds of London.
Section 4.09 FIDELITY BOND.
The Servicer shall maintain with a responsible company, and at
its own expense, a blanket fidelity bond and an errors and omissions insurance
policy, in a minimum amount equal to $1,500,000, and a maximum deductible of
$100,000, if commercially available, with coverage on all employees acting in
any capacity requiring them to handle funds, money, documents or papers relating
to the Mortgage Loans ("Servicer Employees"). The fidelity bond shall insure the
Owner Trustee, the Trustee, the Co-Trustee and their respective officers, and
employees, against losses resulting from forgery, theft, embezzlement or fraud,
by such Servicer Employees. The errors and omissions policy shall insure against
losses resulting from the errors, omissions and negligent acts of such Servicer
Employees. No provision of this Section 4.09 requiring such fidelity bond and
errors and omissions insurance shall relieve the Servicer from its duties as set
forth in this Agreement. Upon the request of the Owner Trustee, the Trustee or
the Co-Trustee, the Servicer shall cause to be delivered to the Owner Trustee,
Trustee or the Co-Trustee a certified true copy of such fidelity bond and
insurance policy. The current issuer of such fidelity bond and insurance policy
is National Union Fire Insurance Company of Pittsburgh, Pennsylvania.
Section 4.10 TITLE, MANAGEMENT AND DISPOSITION OF
REO PROPERTY.
In the event that title to the Mortgaged Property is acquired
in foreclosure or by deed in lieu of foreclosure (an "REO Property"), the deed
or certificate of sale shall be taken in the name of the Owner Trustee (or, with
respect to the FHA Loans, the Co-Trustee) for the benefit of the Noteholders and
the Certificateholders.
The Servicer shall manage, conserve, protect and operate each
REO Property for the Noteholders and the Certificateholders solely for the
purpose of its prudent and prompt disposition and sale. The Servicer shall,
either itself or through an agent selected by the Servicer, manage, conserve,
protect and operate the REO Property in the same manner that it manages,
conserves, protects and operates other foreclosed property for its own account,
and in the same manner that similar property in the same locality as the REO
Property is managed. The Servicer shall attempt to sell the same (and may
temporarily rent the same) on such terms and conditions as the Servicer deems to
be in the best interest of the Noteholders and the Certificateholders.
The Servicer shall cause to be deposited in the Principal and
Interest Account, no later than five Business Days after the receipt thereof,
all revenues received with respect to the conservation and disposition of the
related REO Property net of funds necessary for the proper operation, management
and maintenance of the REO Property and the fees of any managing agent acting on
behalf of the Servicer.
The disposition of REO Property shall be carried out by the
Servicer at such price, and upon such terms and conditions, as the Servicer
deems to be in the best interest of the Noteholders and the Certificateholders.
The proceeds of sale of the REO Property shall be promptly deposited in the
Principal and Interest Account as received from time to time and, as soon as
practicable thereafter, the expenses of such sale shall be paid, the Servicer
shall, subject to Section 4.04, reimburse itself for any related unreimbursed
Servicing Advances, unpaid Servicing Fees, unpaid Contingency Fees and
unreimbursed Monthly Advances, and the Servicer shall deposit in the Principal
and Interest Account the net cash proceeds of such sale to be distributed to the
Noteholders and the Certificateholders, in accordance with Section 7.05 hereof.
In the event any Mortgaged Property is acquired as aforesaid
or otherwise in connection with a default or imminent default on a Mortgage
Loan, the Servicer shall dispose of such Mortgaged Property within two years
after its acquisition unless the Servicer shall have received an Opinion of
Counsel to the effect that the holding of such Mortgaged Property subsequent to
two years after its acquisition will not result in the imposition of taxes on
the Issuer.
Section 4.11 [RESERVED]
Section 4.12 COLLECTION OF CERTAIN MORTGAGE LOAN PAYMENTS.
The Servicer shall make reasonable efforts to collect all
payments called for under the terms and provisions of the Mortgage Loans, and
shall, to the extent such procedures shall be consistent with this Agreement,
comply with the terms and provisions of any applicable hazard insurance policy.
Consistent with the foregoing, the Servicer may in its discretion waive or
permit to be waived any late payment charge, prepayment charge, assumption fee
or any penalty interest in connection with the prepayment of a Mortgage Loan or
any other fee or charge which the Servicer would be entitled to retain hereunder
as servicing compensation and extend the due date for payments due on a Mortgage
Note for a period (with respect to each payment as to which the due date is
extended) not greater than 125 days after the initially scheduled due date for
such payment provided that the Servicer determines such extension would not be
considered a new mortgage loan for federal income tax purposes. In the event the
Servicer shall consent to the deferment of the due dates for payments due on a
Mortgage Note, the Servicer shall nonetheless make payment of any required
Monthly Advance with respect to the payments so extended to the same extent as
if such installment were due, owing and delinquent and had not been deferred,
and shall be entitled to reimbursement therefor in accordance with Section
4.04(b) hereof.
Section 4.13 ACCESS TO CERTAIN DOCUMENTATION AND INFORMATION
REGARDING THE MORTGAGE LOANS.
The Servicer shall provide to the Trustee, the Co-Trustee, the
Owner Trustee, the FDIC, the Office of Thrift Supervision and the supervisory
agents and examiners of each of the foregoing access to the documentation
regarding the Mortgage Loans required by applicable local, state and federal
regulations, such access being afforded without charge but only upon reasonable
request and during normal business hours at the offices of the Servicer
designated by it.
Section 4.14 SUPERIOR LIENS.
The Servicer shall file of record a request for notice of any
action by a superior lienholder under a Prior Lien for the protection of the
Owner Trustee's interest (or, with respect to an FHA Loan, the Co-Trustee),
where permitted by local law and whenever applicable state law does not require
that a junior lienholder be named as a party defendant in foreclosure
proceedings in order to foreclose such junior lienholder's equity of redemption.
The Servicer must also notify any superior lienholder in writing of the
existence of the Mortgage Loan and request notification of any action (as
described below) to be taken against the Mortgagor or the Mortgaged Property by
the superior lienholder.
If the Servicer is notified that any superior lienholder has
accelerated or intends to accelerate the obligations secured by any Prior Lien,
or has declared or intends to declare a default under the mortgage or the
promissory note secured thereby, or has filed or intends to file an election to
have the Mortgaged Property sold or foreclosed, the Servicer shall take, on
behalf of the Issuer, whatever actions are necessary to protect the interests of
the related Noteholders and the Certificateholders, and/or to preserve the
security of the related Mortgage Loan. The Servicer shall immediately notify the
Owner Trustee (and, with respect to an FHA Loan, the Co-Trustee) of any such
action or circumstances. The Servicer will advance the necessary funds to cure
the default or reinstate the superior lien, if such advance is in the best
interests of the Noteholders and the Certificateholders. The Servicer shall
thereafter take such action as is necessary to recover the amount so advanced.
Section 4.15 DUTIES OF THE CLAIMS ADMINISTRATOR. (a) In
connection with each FHA Loan, the Representative, the Servicer, the Claims
Administrator and the Originators will comply at all times with the provisions
of Title I and the rules and regulations promulgated thereunder in servicing
each FHA Loan and making claims for reimbursement with respect to each FHA Loan,
and will at all times hold a valid Contract of Insurance from the FHA for such
purposes (unless such Contract of Insurance is terminated so as not to affect
the obligation of FHA to provide insurance coverage with respect to the FHA
Loans).
(b) If any FHA Loan becomes a 90 Day Delinquent FHA
Loan, and if sufficient coverage is available in the Reserve Amount to make an
FHA Payment with respect to such FHA Loan, the Claims Administrator may, in its
sole discretion, during any subsequent Due Period, determine to file a Claim
with the FHA with respect to such 90 Day Delinquent FHA Loan. If the Claims
Administrator determines to file such a Claim, the Claims Administrator will
notify the Co-Trustee and the Custodian no later than the Determination Date
following such determination by an Officer's Certificate in the form of Exhibit
G-1 hereto and shall request delivery of the related Trustee's Mortgage File.
Upon receipt of such certification and request, the Custodian shall, no later
than the related Remittance Date, release to the Claims Administrator the
related Trustee's Mortgage File and the Co-Trustee and the Custodian shall
execute and deliver such instruments necessary to enable the Claims
Administrator to file a Claim with the FHA on behalf of the Co-Trustee. Within
120 days of its receipt of the related Trustee's Mortgage File, the Claims
Administrator shall, in its sole discretion, either file a Claim with the FHA
for an FHA Payment with respect to such 90 Day Delinquent FHA Loan or, if the
Claims Administrator determines not to file such a Claim, return to the
Custodian on behalf of the Co-Trustee the related Trustee's Mortgage File.
(c) With respect to any 90 Day Delinquent FHA Loan
transferred to the Claims Administrator pursuant to clause (b) above, the Claims
Administrator shall deposit (or, if the Claims Administrator is not also the
Servicer, the Claims Administrator shall instruct the Servicer to deposit) in
the Principal and Interest Account within 24 hours of receipt the following
amounts (such amounts to be net of any amounts that would be reimbursable to the
Servicer under Section 4.04(b) with respect to amounts in the Principal and
Interest Account): (i) any FHA Payments; (ii) the amount, if any, by which the
FHA Payment was reduced in accordance with FHA Regulations due to the Claims
Administrator enforcing a lien on the Mortgaged Property prior to the lien of
the related 90 Day Delinquent FHA Loan; and (iii) any principal and interest
payments received with respect to a 90 Day Delinquent FHA Loan after the Due
Period in which the FHA Loan is transferred to the Claims Administrator and
before either the related FHA Payment is paid or the related Trustee's Mortgage
File is returned to the Co-Trustee on behalf of the Trustee, as the case may be
(the amounts referred to in (ii) and (iii) above are referenced to herein as
"Related Payments").
(d) If an FHA Loan becomes a 90 Day Delinquent FHA
Loan when there is insufficient coverage in the Reserve Amount, or if the Claims
Administrator determines not to file a Claim with the FHA with respect to such
90 Day Delinquent FHA Loan, the Co- Trustee will not transfer such FHA Loan to
the Claims Administrator, no Claim will be made to the FHA and the Servicer may
take other action, including the commencement of foreclosure proceedings, on the
related Mortgaged Property.
(e) If a Claim is rejected by the FHA and if the
Claims Administrator is no longer The Money Store Inc., the Claims Administrator
shall promptly notify the Servicer and the Representative of such rejection.
Further, if a Claim is rejected by the FHA, other than as a result of depletion
of the Reserve Amount, the related Originator shall be deemed to have breached
its representation and warranty contained in Section 3.02 (nnn) and the
Representative shall be required to repurchase the related 90 Day Delinquent FHA
Loan by depositing in the Principal and Interest Account, on the next succeeding
Determination Date, an amount and in the manner specified in Section 2.05(b).
ARTICLE V
GENERAL SERVICING PROCEDURE
Section 5.01 ASSUMPTION AGREEMENTS.
When a Mortgaged Property has been or is about to be conveyed
by the Mortgagor, the Servicer shall, to the extent it has knowledge of such
conveyance or prospective conveyance, exercise its rights to accelerate the
maturity of the related Mortgage Loan under any "due-on-sale" clause contained
in the related Mortgage or Mortgage Note; provided, however, that the Servicer
shall not exercise any such right if the "due-on-sale" clause, in the reasonable
belief of the Servicer, is not enforceable under applicable law or if such
enforcement would materially increase the risk of default or delinquency on, or
materially decrease the security for, such Mortgage Loan. In such event, the
Servicer shall enter into an assumption and modification agreement with the
person to whom such property has been or is about to be conveyed, pursuant to
which such person becomes liable under the Mortgage Note and, unless prohibited
by applicable law or the Mortgage, the Mortgagor remains liable thereon. The
Servicer is also authorized to enter into a substitution of liability agreement
with such person, pursuant to which the original Mortgagor is released from
liability and such person is substituted as Mortgagor and becomes liable under
the Mortgage Note. The Servicer shall notify the Trustee (and, with respect to
FHA Loans, the Co-Trustee and the Custodian) that any such substitution or
assumption agreement has been completed by forwarding to the Trustee (and, with
respect to the FHA Loans, the Custodian) the original of such substitution or
assumption agreement, which original shall be added by the Trustee (and, with
respect to the FHA Loans, the Custodian) to the related Trustee's Mortgage File
and shall, for all purposes, be considered a part of such Trustee's Mortgage
File to the same extent as all other documents and instruments constituting a
part thereof. In connection with any assumption or substitution agreement
entered into pursuant to this Section 5.01, the Servicer shall not change the
Mortgage Interest Rate or the Monthly Payment, defer or forgive the payment of
principal or interest, reduce the outstanding principal amount or extend the
final maturity date on such Mortgage Loan. Any fee collected by the Servicer for
consenting to any such conveyance or entering into an assumption or substitution
agreement shall be retained by or paid to the Servicer as additional servicing
compensation.
Notwithstanding the foregoing paragraph or any other provision
of this Agreement, (i) the Servicer shall not be deemed to be in default, breach
or any other violation of its obligations hereunder by reason of any assumption
of a Mortgage Loan by operation of law or any assumption which the Servicer may
be restricted by law from preventing, for any reason whatsoever; and (ii) the
Servicer shall not take any action which would adversely affect the coverage of
an FHA Loan for insurance by the FHA under Title I.
Section 5.02 SATISFACTION OF MORTGAGES AND RELEASE OF MORTGAGE
FILES.
The Servicer shall not grant a satisfaction or release of a
Mortgage without having obtained payment in full of the indebtedness secured by
the Mortgage or otherwise prejudice any right the Noteholders or the
Certificateholders may have under the mortgage instruments, subject to Section
4.01 hereof. The Servicer shall maintain the Fidelity Bond as provided for in
Section 4.09 insuring the Servicer against any loss it may sustain with respect
to any Mortgage Loan not satisfied in accordance with the procedures set forth
herein.
Upon the payment in full of any Mortgage Loan, or the receipt
by the Servicer of a notification that payment in full will be escrowed in a
manner customary for such purposes, the Servicer will immediately notify the
Trustee (and, with respect to the FHA Loans, the Custodian), by an Officers'
Certificate in the form of Exhibit G attached hereto (which certification shall
include a statement to the effect that all amounts received or to be received in
connection with such payment which are required to be deposited in the Principal
and Interest Account pursuant to Section 4.03 have been or will be so deposited)
of a Servicing Officer and shall request delivery to it of the Trustee's
Mortgage File. Upon receipt of such certification and request, the Trustee (and,
with respect to the FHA Loans, the Custodian) shall promptly release the related
Trustee's Mortgage File to the Servicer. Expenses incurred in connection with
any instrument of satisfaction or deed of reconveyance shall be payable only
from and to the extent of servicing compensation and shall not be chargeable to
the Principal and Interest Account or any other Accounts.
From time to time and as appropriate for the servicing or
foreclosure of any Mortgage Loan, including, for this purpose, collection under
any primary mortgage guaranty insurance policy, the Trustee (and, with respect
to the FHA Loans, the Custodian) shall, upon request of the Servicer and
delivery to the Trustee (and, with respect to the FHA Loans, the Custodian) of a
certification in the form of Exhibit G attached hereto signed by a Servicing
Officer, release the related Trustee's Mortgage File to the Servicer, and the
Trustee (or, with respect to the FHA Loans, the Custodian and the Co-Trustee)
shall execute such documents as shall be necessary to the prosecution of any
such proceedings. Such servicing receipt shall obligate the Servicer to return
the Mortgage File to the Trustee (or, with respect to the FHA Loans, the
Custodian) when the need therefor by the Servicer no longer exists, unless the
Mortgage Loan has been liquidated and the Liquidation Proceeds relating to the
Mortgage Loan have been deposited in the Principal and Interest Account or the
Mortgage File or such document has been delivered to an attorney, or to a public
trustee or other public official as required by law, for purposes of initiating
or pursuing legal action or other proceedings for the foreclosure of the
Mortgaged Property either judicially or non-judicially, and the Servicer has
delivered to the Trustee (and, with respect to the FHA Loans, the Custodian) a
certificate of a Servicing Officer certifying as to the name and address of the
Person to which such Mortgage File or such document was delivered and the
purpose or purposes of such delivery. Upon receipt of a certificate of a
Servicing Officer stating that such Mortgage Loan was liquidated, the servicing
receipt shall be released by the Trustee (or, with respect to the FHA Loans, the
Custodian) to the Servicer.
The Trustee (or, with respect to the FHA Loans, the
Co-Trustee) shall execute and deliver to the Servicer any court pleadings,
requests for trustee's sale or other documents necessary to the foreclosure or
trustee's sale in respect of a Mortgaged Property or to any legal action brought
to obtain judgment against any Mortgagor on the Mortgage Note or Mortgage or to
obtain a deficiency judgment, or to enforce any other remedies or rights
provided by the Mortgage Note or Mortgage or otherwise available at law or in
equity. Together with such documents or pleadings, the Servicer shall deliver to
the Trustee (or, with respect to the FHA Loans, the Co-Trustee) a certificate of
a Servicing Officer requesting that such pleadings or documents be executed by
the Trustee (or, with respect to the FHA Loans, the Co-Trustee) and certifying
as to the reason such documents or pleadings are required and that the execution
and delivery thereof by the Trustee (or, with respect to the FHA Loans, the
Co-Trustee) will not invalidate or otherwise affect the lien of the Mortgage,
except for the termination of such a lien upon completion of the foreclosure or
trustee's sale. The Trustee (or, with respect to the FHA Loans, the Co-Trustee)
shall, upon receipt of a written request from a Servicing Officer, execute any
document provided to the Trustee (or, with respect to the FHA Loans, the Co-
Trustee) by the Servicer or take any other action requested in such request,
that is, in the opinion of the Servicer as evidenced by such request, required
by any state or other jurisdiction to discharge the lien of a Mortgage upon the
satisfaction thereof and the Trustee (or, with respect to the FHA Loans, the
Co-Trustee) will sign and post, but will not guarantee receipt of, any such
documents to the Servicer, or such other party as the Servicer may direct,
within five Business Days of the Trustee's (or, with respect to the FHA Loans,
the Co-Trustee's) receipt of such certificate or documents. Such certificate or
documents shall establish to the Trustee's (or, with respect to the FHA Loans,
the Co-Trustee's) satisfaction that the related Mortgage Loan has been paid in
full by or on behalf of the Mortgagor and that such payment has been deposited
in the Principal and Interest Account.
Section 5.03 SERVICING COMPENSATION AND CONTINGENCY FEE.
(a) As compensation for its services hereunder, the
Servicer shall be entitled to withdraw from the applicable Principal and
Interest Account or to retain from interest payments on the Mortgage Loans the
Servicer's Servicing Fee. Additional servicing compensation in the form of
assumption and other administrative fees, prepayment penalties and premiums,
interest paid on funds on deposit in the Principal and Interest Account,
interest paid and earnings realized on Permitted Instruments, and late payment
charges shall be retained by or remitted to the Servicer to the extent not
required to be remitted to the Trustee for deposit in the applicable Account.
The Servicer shall be required to pay all expenses incurred by it in connection
with its servicing activities hereunder and shall not be entitled to
reimbursement therefor except as specifically provided for herein.
(b) The Servicer shall be entitled to withdraw from
the applicable Principal and Interest Account or to retain from interest
payments on the Mortgage Loans the Contingency Fee. In the event that The Money
Store Inc. is terminated as Servicer pursuant to this Agreement, any duly
appointed successor to the Servicer shall also be entitled to withdraw from the
Principal and Interest Account or to retain from interest payments on the
Mortgage Loans the successor Servicer's Contingency Fee.
Section 5.04 ANNUAL STATEMENT AS TO COMPLIANCE.
The Servicer will deliver to the Owner Trustee, the Trustee,
the Co-Trustee and each of the Rating Agencies, on or before March 31 of each
year beginning _____ __, 199_, an Officers' Certificate stating that (i) the
Servicer has fully complied with the provisions of Articles IV and V and the
Claims Administrator has fully complied with Section 4.15, (ii) a review of the
activities of the Servicer and the Claim Administrator during the preceding
calendar year and of performance under this Agreement has been made under such
officers' supervision, and (iii) to the best of such officers' knowledge, based
on such review, the Servicer has fulfilled all its obligations under this
Agreement throughout such year, or, if there has been a default in the
fulfillment of any such obligation, specifying each such default known to such
officers and the nature and status thereof and the action being taken by the
Servicer and the Claims Administrator, as applicable, to cure such default.
Section 5.05 ANNUAL INDEPENDENT PUBLIC ACCOUNTANTS' SERVICING
REPORT.
On or before March 31 of each year beginning _____ __, 199_,
the Servicer, at its expense, shall cause a firm of independent public
accountants reasonably acceptable to the Trustee and the Certificate Insurer to
furnish a letter or letters to the Owner Trustee, the Trustee, the Co-Trustee
and the Rating Agencies to the effect that such firm has with respect to the
Servicer's overall servicing operations examined such operations in accordance
with the requirements of the Uniform Single Audit Program for Mortgage Bankers,
and stating such firm's conclusions relating thereto.
Section 5.06 TRUSTEE'S, CO-TRUSTEE'S AND OWNER TRUSTEE'S RIGHT
TO EXAMINE SERVICER RECORDS AND AUDIT OPERATIONS.
The Trustee, the Co-Trustee and the Owner Trustee shall have
the right upon reasonable prior notice, during normal business hours and as
often as reasonably required, to examine and audit any and all of the books,
records or other information of the Servicer and the Claims Administrator,
whether held by the Servicer or by another on behalf of the Servicer and the
Claims Administrator, which may be relevant to the performance or observance by
the Servicer and the Claims Administrator of the terms, covenants or conditions
of this Agreement.
Section 5.07 REPORTS TO THE TRUSTEE; PRINCIPAL AND INTEREST
ACCOUNT STATEMENTS.
Not later than 20 days after each Record Date, the Servicer
shall forward to the Trustee a statement, certified by a Servicing Officer,
setting forth the status of each Principal and Interest Account as of the close
of business on the preceding Record Date and showing, for the period covered by
such statement, the aggregate of deposits into each Principal and Interest
Account for each category of deposit specified in Section 4.03, the aggregate of
withdrawals from each Principal and Interest Account for each category of
withdrawal specified in Section 4.04, the aggregate amount of permitted
withdrawals not made in the related Due Period, and the amount of any Monthly
Advances or payments of Compensating Interest, in each case, for the related Due
Period.
ARTICLE VI
REPORTS TO BE PROVIDED BY SERVICER
Section 6.01 FINANCIAL STATEMENTS.
The Servicer understands that, in connection with the transfer
of the Notes and the Certificates, Noteholders and the Certificateholders may
request that the Servicer make available to prospective Noteholders and the
Certificateholders annual audited financial statements of the Servicer for one
or more of the most recently completed five fiscal years for which such
statements are available, which request shall not be unreasonably denied.
ARTICLE VII
DISTRIBUTIONS; RESERVE ACCOUNT;
STATEMENTS TO CERTIFICATEHOLDERS AND NOTEHOLDERS
Section 7.01 ESTABLISHMENT OF TRUST ACCOUNTS. (a) (i) The
Servicer, for the benefit of the Noteholders, shall establish and maintain in
the name of the Trustee an Account (the "Note Distribution Account"), bearing a
designation clearly indicating that the funds deposited therein are held for the
benefit of the Noteholders. The Note Distribution Account shall initially be
established with the Trustee.
(ii) The Servicer, for the benefit of the
Noteholders and the Certificateholders shall establish and
maintain in the name of the Trustee an Account (the "Pre-Funding
Account"), bearing a designation clearly indicating that the
funds deposited therein are held for the benefit of the
Noteholders and the Certificateholders. The Pre-Funding Account
shall be maintained with the Trustee as long as the Trustee is a
Designated Depository Institution.
(iii) The Servicer, for the benefit of the
Noteholders and the Certificateholders, shall establish and
maintain in the name of the Trustee an Account (the "Reserve
Account"), bearing a designation clearly indicating that the
funds deposited therein are held for the benefit of the
Noteholders and the Certificateholders. The Reserve Account shall
be maintained with the Trustee as long as the Trustee is a
Designated Depository Institution.
(b) Funds on deposit in the Note Distribution
Account, the Pre- Funding Account, the Capitalized Interest Account, the FHA
Premium Account and the Reserve Account (collectively, the "Trust Accounts") and
the Certificate Distribution Account shall be invested by the Trustee with
respect to Trust Accounts and by the Owner Trustee with respect to the
Certificate Distribution Account (or any custodian with respect to funds on
deposit in any such account) in Permitted Instruments selected in writing by the
Servicer (pursuant to standing instructions or otherwise); PROVIDED, HOWEVER, it
is understood and agreed that neither the Trustee nor the Owner Trustee shall be
liable for any loss arising from such investment in Permitted Instruments. All
such Permitted Instruments shall be held by or on behalf of the Trustee or the
Owner Trustee, as applicable, for the benefit of the Noteholders and the
Certificateholders, as applicable. Other than as permitted by the Rating
Agencies, no such investment in the Note Distribution Account or the Certificate
Distribution Account shall mature later than the Business Day immediately
preceding the next Remittance Date and no such investment in the Reserve
Account, Pre-Funding Account, Capitalized Interest Account or FHA Premium
Account shall mature later than the Business Day immediately preceding the date
such funds will be needed to pay fees or premiums or be transferred to the Note
Distribution Account or the Certificate Distribution Account; PROVIDED, HOWEVER,
the Trustee or any affiliate thereof may be the obligor on any investment which
otherwise qualifies as a Permitted Instrument and any investment on which the
Trustee is the obligor may mature on such Remittance Date or date when needed,
as the case may be. All income or other gain from investments in any Account
held by the Trustee shall be deposited in such Account,
immediately on receipt, and the Trustee shall notify the Servicer of any loss
resulting from such investments. The Servicer shall remit the amount of any such
loss from its own funds, without reimbursement therefor, to the Trustee for
deposit in the Account from which the related funds were withdrawn for
investment by the next Determination Date following receipt by the Servicer of
such notice.
(c) (i) The Trustee shall possess all right, title and
interest in all funds on deposit from time to time in the Trust Accounts and in
all proceeds thereof (including all income thereon) and all such funds,
investments, proceeds and income shall be part of the Owner Trust Estate. Except
as otherwise provided herein, the Trust Accounts shall be under the sole
dominion and control of the Trustee for the benefit of the Noteholders and the
Certificateholders, or the Noteholders, as the case may be. If, at any time, any
of the Trust Accounts or the Certificate Distribution Account ceases to be held
with a Designated Depository Institution, the Trustee (or the Servicer on its
behalf) or the Owner Trustee, as applicable, shall within 10 Business Days (or
such longer period as to which each Rating Agency may consent) establish a new
Trust Account or a new Certificate Distribution Account, as applicable, held
with a Designated Depository Institution and shall transfer any cash and/or any
investments to such new Trust Account or a new Certificate Distribution Account,
as applicable. In connection with the foregoing, the Servicer agrees that, in
the event that any of the Trust Accounts are not accounts with the Trustee, the
Servicer shall notify the Trustee in writing promptly upon any of such Trust
Accounts ceasing to be held with a Designated Depository Institution.
(ii) With respect to the Trust Account Property,
the Trustee, and with respect to the Certificate Distribution
Account, the Owner Trustee, agrees, by its respective
acceptance hereof, that:
(A) any Trust Account Property or
any property in the Certificate Distribution
Account that is held in deposit accounts shall be
held solely with a Designated Depository
Institution subject to the penultimate sentence of
Section 7.01(c)(i); and, except as otherwise
provided herein, each such Account shall be
subject to the exclusive custody and control of
the Trustee with respect to the Trust Accounts and
the Owner Trustee with respect to the Certificate
Distribution Account, and the Trustee or the Owner
Trustee, as applicable, shall have sole signature
authority with respect thereto;
(B) any Trust Account Property that
constitutes Physical Property shall be delivered
to the Trustee in accordance with paragraph (a) of
the definition of "Delivery" and shall be held,
pending maturity or disposition, solely by the
Trustee or a financial intermediary (as such term
is defined in Section 8-313(4) of the UCC) acting
solely for the Trustee;
(C) any Trust Account Property that
is a book-entry security held through the Federal
Reserve System pursuant to Federal book-entry
regulations shall be delivered in accordance with
paragraph (b) of the definition of "Delivery" and
shall be maintained by the Trustee, pending
maturity or disposition, through continued
book-entry registration of such Trust Account
Property as described in such paragraph; and
(D) any Trust Account Property that
is an "uncertificated security" under Article 8 of
the UCC and that is not governed by clause (C)
above shall be delivered to the Trustee in
accordance with paragraph (c) of the definition of
"Delivery" and shall be maintained by the Trustee,
pending maturity or disposition, through continued
registration of the Trustee's (or its nominee's)
ownership of such security.
(iii) The Servicer shall have the power,
revocable by the Trustee or by the Owner Trustee with the
consent of the Trustee, to instruct the Trustee to make
withdrawals and payments from the Trust Accounts for the
purpose of permitting the Servicer or the Owner Trustee to
carry out its respective duties hereunder or permitting the
Trustee to carry out its duties under the Indenture.
Section 7.02 PRE-FUNDING ACCOUNT AND CAPITALIZED
INTEREST ACCOUNT.
(a) No later than the Closing Date, the Representative shall
establish and maintain with the Trustee in its trust department a trust account,
which shall not be interest- bearing, titled "The Money Store Pre-Funding
Account 199_-___" (the "Pre-Funding Account"). The Trustee shall, promptly upon
receipt, deposit into the Pre-Funding Account and retain therein the Original
Pre-Funded Amount in an amount equal to $___________ from the proceeds of the
sale of the Notes.
(b) On each Subsequent Transfer Date, the Representative
shall instruct the Trustee to withdraw from the Pre-Funding Account an amount
equal to 100% of the aggregate Principal Balances of the Subsequent Mortgage
Loans (or, with respect to the Low Interest Mortgage Loans, if any, an amount
equal to the product of the percentage set forth on Exhibit O attached hereto
determined by referring to the columns entitled "Coupon" and "Remaining Term"
and the aggregate Principal Balances of such Subsequent Mortgage Loans) sold to
the Issuer on such Subsequent Transfer Date and pay such amount to or upon the
order of the Representative with respect to such transfer. In no event shall the
Representative be permitted to instruct the Trustee to release from the
Pre-Funding Account with respect to Subsequent Mortgage Loans an amount in
excess of $____________.
(c) If at the end of the Funding Period amounts still remain
in the Pre-Funding Account, the Servicer shall instruct the Trustee to withdraw
from the Pre-Funding Account on the immediately following Remittance Date and
deposit in the Note Distribution Account any Pre-Funded Amount then remaining in
the Pre-Funding Account.
(d) On the Remittance Dates occurring during the Funding
Period, the Trustee shall transfer from the Pre-Funding Account to the Note
Distribution Account the Pre-Funding Earnings, if any, applicable to each such
Remittance Date.
(e) No later than the Closing Date, the Representative shall
establish and maintain with the Trustee in its trust department a trust account,
which shall not be interest- bearing, titled "The Money Store Capitalized
Interest Account 199_-__" (the "Capitalized Interest Account"). The Trustee
shall, promptly upon receipt, deposit into the Capitalized Interest Account
$___________. If prior to the end of the Funding Period the funds on deposit in
the Pre-Funding Account are invested in a guaranteed investment contract,
repurchase agreement or other arrangement, that constitutes a Permitted
Instrument, the Trustee shall, within one Business Day of its receipt of written
notification from the Servicer, withdraw from the Capitalized Interest Account
and pay to the holder of the GP Interest the amount set forth in such written
notification.
(f) On the Remittance Dates occurring during the Funding
Period, the Trustee shall transfer from the Capitalized Interest Account to the
Note Distribution Account the Capitalized Interest Requirement, if any, for such
Remittance Dates. Any amount remaining in the Capitalized Interest Account on
the Remittance Date immediately succeeding the last subsequent Transfer Date
shall be remitted to the holder of the GP Interest, and the Capitalized Interest
Account shall be closed.
Section 7.03 FHA PREMIUM ACCOUNT.
(a) No later than the Closing Date, the Trustee will
establish with itself in its trust department a trust account, which shall not
be interest bearing, titled "The Money Store FHA Premium Account 199_-__" (the
"FHA Premium Account"). The FHA Premium Account shall not be available for
payment of Notes or Certificates. The Trustee shall deposit into the FHA Premium
Account:
(i) on each Remittance Date, upon receipt an
amount equal to the FHA Premium Amount; and
(ii) upon receipt, amounts required to be paid by
the Servicer pursuant to Section 7.01 in connection with losses
on investments of amounts in the FHA Premium Account.
If the Servicer fails to pay the FHA Insurance Premium with respect to an FHA
Loan in accordance with Section 4.01 hereof, the Trustee shall, upon written
instructions from the Servicer, withdraw an amount from the FHA Premium Account
sufficient to pay in full the FHA Insurance Premium then due. If the amount on
deposit in the FHA Premium Account is insufficient to pay the FHA Insurance
Premium then due, the Trustee shall transfer an amount from the Certificate
Account to the FHA Premium Account sufficient to pay in full the FHA Insurance
Premium then due.
(b) The Trustee may invest amounts on deposit in the FHA
Premium Account in Permitted Instruments pursuant to Section 7.01, and the
Trustee shall withdraw amounts on deposit in the FHA Premium Account to:
(i) remit, upon certification of payment made to
the FHA, funds requested by the Servicer (including any successor
to the Servicer) as reimbursement for the FHA Insurance Premiums
paid by the Servicer or remit to the FHA amounts payable in
respect of FHA Insurance Premiums pursuant to the last paragraph
of subclause (a) above;
(ii) pay on a monthly basis to the Servicer as
additional servicing compensation interest paid and earnings
realized on Permitted Instruments;
(iii) withdraw amounts not required to be
deposited in the FHA Premium Account or deposited therein in
error;
(iv) [Reserved]; and
(v) clear and terminate the FHA Premium Account
upon the termination of this Agreement in accordance with the
terms of Section hereof.
Section 7.04 [RESERVED]
Section 7.05 DISTRIBUTIONS.
(a) On each Determination Date, the Servicer shall calculate
all amounts required to determine the amounts to be deposited from the Reserve
Account into the Principal and Interest Account and from the Principal and
Interest Account into the Note Distribution Account and the Certificate
Distribution Account.
(b) On or before each Remittance Date, the Servicer shall
instruct the Trustee (based on the information contained in the Servicer's
Certificate delivered on the related Determination Date pursuant to Section
7.08) to withdraw from the Reserve Account and deposit in the Principal and
Interest Account and the Trustee shall so withdraw and deposit the Reserve
Account Transfer Amount for such Remittance Date.
(c) Subject to the last paragraph of this Section 7.05, on
each Remittance Date, the Servicer shall instruct the Trustee (based on the
information contained in the Servicer's Certificate delivered on the related
Determination Date) to make, and the Trustee shall make, the following deposits
and distributions from the Principal and Interest Account, the Pre-Funding
Account and the Capitalized Interest Account, as applicable, for deposit in the
applicable Account by 11:00 a.m. (New York time), to the extent of the Total
Distribution Amount, in the following order of priority:
(i) to each of the Owner Trustee and the Trustee,
from the Total Distribution Amount, their respective accrued and
unpaid fees (in each case to the extent such fees have not
previously been paid by the Servicer or the Representative);
(ii) to the Servicer, from the Total Distribution
Amount, the Total Servicing Fee and Contingency Fee;
(iii) to the Note Distribution Account, from the
Total Distribution Amount remaining after the application of
clauses (i) and (iii), the Noteholders' Interest Distributable
Amount;
(iv) to the Owner Trustee for deposit in the
Certificate Distribution Account, from the Total Distribution
Amount remaining after the application of clauses (i) through
(iii), the Certificateholders' Interest Distributable Amount;
(v) to the Note Distribution Account, from the
Total Distribution Amount remaining after the application of
clauses (i) through (iv), the Noteholders' Principal
Distributable Amount;
(vi) to the Owner Trustee for deposit in the
Certificate Distribution Account, from the Total Distribution
Amount remaining after the application of clauses (i) through
(v), the Certificateholders' Principal Distributable Amount;
PROVIDED, HOWEVER, that following the occurrence of an Event of
Default pursuant to the Indenture, an acceleration of the Notes
pursuant to Section 5.2 of the Indenture or an Insolvency Event
with respect to the holder of the GP Interest, amounts on deposit
in the Principal and Interest Account will be deposited in the
Note Distribution Account to the extent necessary to pay accrued
and unpaid interest on the Notes and then, to the extent funds
are available therefor, principal on the Notes until the
principal balance of each class of Notes has been reduced to
zero, before any amounts are deposited in the Certificate
Distribution Account. Following the payment in full of the Notes,
amounts on deposit in the Principal and Interest Account will be
deposited in the Certificate Distribution Account to the extent
necessary to pay accrued and unpaid interest on the Certificates
and then, to the extent funds are available therefor, principal
on the Certificates until the principal balance thereof has been
reduced to zero; and
(vii) to the holder of the GP Interest, from the
Total Distribution Amount remaining after the application of
clauses (i) through (vi) above, any remaining funds.
If the Principal and Interest Account is maintained with an
institution other than the Trustee, the Servicer shall instruct and cause such
institution to make all deposits and distributions pursuant to this Section
7.05(c).
Section 7.06 RESERVE ACCOUNT. (a) On the Closing Date, the
Originators shall deposit the Reserve Account Initial Deposit into the Reserve
Account.
(b) If the amount on deposit in the Reserve Account
on any Remittance Date (after giving effect to any withdrawals therefrom on such
Remittance Date) is greater than the Specified Reserve Account Balance for such
Remittance Date, the Servicer shall instruct the Trustee to distribute, and the
Trustee shall distribute, the amount of the excess to the
Originators.
Amounts properly distributed to the Originators pursuant to this
Section 7.06(b) shall be deemed released from the Trust and the security
interest therein granted to the Trustee and the Originators shall in no event
thereafter be required to refund any such distributed amounts.
Section 7.07 [Intentionally Omitted].
Section 7.08 STATEMENTS TO CERTIFICATEHOLDERS AND NOTEHOLDERS.
On each Determination Date, the Servicer shall provide to the Trustee (with a
copy to the Rating Agencies) for the Trustee to forward to each Noteholder of
record, to each Paying Agent, if any, and to the Owner Trustee for the Owner
Trustee to forward to each Certificateholder of record, a statement
setting forth at least the following information as to the Notes and the
Certificates to the extent applicable:
(a) the amount of such distribution allocable to principal
of each class of Notes and to the Certificate Balance of the Certificates;
(b) the amount of such distribution allocable to interest on
or with respect to each class of Notes and to the Certificates;
(c) the aggregate outstanding principal balance of each
class of the Notes and the Certificate Balance after giving effect to payments
allocated to principal reported under (i) above;
(d) the amount of the Total Servicing Fee paid to the
Servicer with respect to the related Due Period;
(e) The amount of the Monthly Advances payment and the
Compensating Interest payment to be made on the Determination Date;
(f) the amount of the aggregate Realized Losses, if any, for
such Due Period;
(g) the Reserve Account Transfer Amount, if any, for such
Remittance Date, the average of the Charge-off Rates and the Delinquency
Percentages for the three preceding Due Periods, the Specified Reserve Account
Balance for such Remittance Date, the amount distributed to the Originators from
the Reserve Account on such Remittance Date, and the balance of the Reserve
Account (if any) on such Remittance Date, after giving effect to changes therein
on such Remittance Date;
(h) the amounts which are reimbursable to the Servicer for
Reimbursable Amounts and Nonrecoverable Advances;
(i) the amount of Servicing Advances for the preceding Due
Period;
(j) the aggregate amount paid by the Originators or the
Servicer with respect to the related Due Period to purchase Deleted Mortgage
loans;
(k) the Principal Distribution Amounts for the related
Remittance Date, in the aggregate and listed separately for the portions
relating to each class of Notes and the Certificates;
(l) the Realized Loss Amounts for the related Remittance
Date (by Class and in the aggregate);
(m) the number and Principal Balances of all Mortgage Loans
which were the subject of Principal Prepayments during the Due Period;
(n) the amount of all Curtailments which were
received during the Due Period;
(o) the aggregate amount of all Excess Payments and the
amounts of Monthly Payments in respect of principal received during the Due
Period;
(p) the amount of interest received on the Mortgage Loans;
(q) the delinquency and foreclosure information set forth in
the form attached hereto as Exhibit L;
(r) the amount of any Realized Losses incurred during the
related Due Period;
(s) the Total Distribution Amount for the Remittance Date,
in the aggregate and by component;
(t) the Cumulative Realized Losses, with respect to the
Remittance Date;
(u) the Servicing Fees, the Contingency Fees and amounts to
be deposited to the Expense Account and the FHA Premium Account;
(v) the weighted average Mortgage Loan Interest Rate and
Adjusted Mortgage Loan Interest Rate, and the weighted average Mortgage Loan
Interest Rate for the prior three month period;
(w) the amount to be deposited into the FHA Premium Account
on the related Remittance Date and the amount reimbursable to the Servicer from
the FHA Premium Account;
(x) the amount of FHA Payments and Related Payments received
during the related Due Period;
(y) the Reserve Amount for the related Remittance Date;
(z) claims filed during the Due Period;
(aa) claims paid during the Due Period;
(bb) claims denied by the FHA during the Due Period;
(cc) claims pending payment by the FHA during the Due
Period; and
(dd) Such other information as the Trustee may reasonably
require.
To the extent that there are inconsistencies between the telecopy of
the Servicer's Certificate and the hard copy thereof, the Trustee shall be
entitled to rely upon the telecopy.
Each amount set forth pursuant to paragraph (a), (b), (f) or (h)
above shall be expressed as a dollar amount per $1,000 of the initial principal
balance of the Notes (or class thereof) or the initial Certificate Balance, as
applicable.
Section 7.09 ADVANCES BY THE SERVICER.
Not later than the close of business on each Determination Date,
the Servicer shall remit to the Trustee for deposit in the Principal and
Interest Account an amount (as indicated in the Servicer's Certificate prepared
pursuant to Section 7.08), to be distributed on the related Remittance Date
pursuant to Section 7.07, equal to the amount, if any, by which (a) the amount
equal to 30 days' interest at the Weighted Average Remittance Rate on the Pool
Principal Balance immediately prior to the related Remittance Date exceeds (b)
the amount received by the Servicer as of the related Record Date in respect of
interest on the Mortgage Loans (and, with respect to the Remittance Dates during
the Funding Period, the sum of (i) all funds to be transferred to the Note
Distribution Account from the Capitalized Interest Account for such Remittance
Date and (ii) the Pre-Funding Earnings for the applicable Remittance Date). The
sum of such excess is defined herein as the "Monthly Advance." The Servicer may
reimburse itself for Monthly Advances made pursuant to Section 4.04.
Notwithstanding anything herein to the contrary, no Monthly
Advance shall be required to be made if the Servicer determines that such
Monthly Advance would, if made, constitute a Nonrecoverable Advance.
Section 7.10 COMPENSATING INTEREST.
The Certificateholders shall be entitled to a full month's
interest for each Mortgage Loan for any month during which a Principal
Prepayment or Curtailment is received on such Mortgage Loan. Not later than the
close of business on each Determination Date, with respect to each Mortgage Loan
for which a Principal Prepayment or Curtailment was received during the related
Due Period, the Servicer shall remit to the Trustee for deposit in the Principal
and Interest Account from amounts otherwise payable to it as servicing
compensation, an amount (such amount required to be delivered to the Trustee is
referred to herein as "Compensating Interest") (as indicated in the Servicer's
Certificate prepared pursuant to Section 7.08) equal to the difference between
(a) 30 days' interest at the applicable Mortgage Interest Rate on the Principal
Balance of each such Mortgage Loan and (b) the amount of interest actually
received on each such Mortgage Loan for such Due Period as of the beginning of
the Due Period applicable to the Remittance Date on which such amount will be
distributed.
Section 7.11 ESTABLISHMENT OF SERVICING ACCOUNTS; COLLECTION OF
TAXES, ASSESSMENTS AND SIMILAR ITEMS.
(a) The Servicer shall establish and maintain, or cause to be
established and maintained, one or more Servicing Accounts. The Servicer will
deposit and retain, or cause to be deposited and retained, therein all
collections from the Mortgagors for the payment of taxes, assessments, insurance
premiums, or comparable items as agent of the Mortgagors.
(b) The Deposits in the Servicing Accounts shall be held in a
Designated Depository Institution in an account designated as a "Mortgage Loan
Servicing Account," held in trust by the Servicer or a Subservicer acting on its
own behalf and as agent for holders of various pass-through securities and other
interests in mortgage loans sold by it. The amount at any time credited to a
Servicing Account must be fully insured by FDIC, or, to the extent that such
deposits exceed the limits of such insurance, such excess must be (i)
transferred to another fully insured account in another Designated Depository
Institution or (ii) if permitted by applicable law, invested in Permitted
Investments held in trust by the Servicer or a Subservicer. Withdrawals of
amounts from the Servicing Accounts may be made only to effect timely payment of
taxes, assessments, insurance premiums, or comparable items, to reimburse the
related Servicer or Subservicer for any advances made with respect to such
items, to refund to any Mortgagors any sums as may be determined to be overages,
to pay interest, if required, to Mortgagors on balances in the Servicing
Accounts, to pay the related Servicer or Subservicer the remainder of any income
on balances in the Servicing Accounts or to clear and terminate the Servicing
Accounts at or any time after the termination of this Agreement.
Section 7.12 NET DEPOSITS. As an administrative convenience,
unless the Servicer is required to remit collections within two Business Days of
receipt thereof, the Servicer will be permitted to make the deposit of
collections on the Mortgage Loans for or with respect to the Due Period net of
distributions to be made to the Servicer with respect to the Due Period. The
Servicer, however, will account to the Owner Trustee, the Trustee, the
Noteholders and the Certificateholders as if all deposits, distributions and
transfers were made individually.
<PAGE>
ARTICLE VIII
[RESERVED]
ARTICLE IX
THE SERVICER
Section 9.01 INDEMNIFICATION; THIRD PARTY CLAIMS.
(a) The Servicer agrees to indemnify and hold the Trustee,
the Co- Trustee, the Owner Trustee and each Noteholder and Certificateholder
harmless against any and all claims, losses, penalties, fines, forfeitures,
legal fees and related costs, judgments, and any other costs, fees and expenses
that the Trustee, the Co-Trustee, the Owner Trustee and any Noteholder and
Certificateholder may sustain in any way related to the failure of the Servicer
and the Claims Administrator to perform its duties and service the Mortgage
Loans in compliance with the terms of this Agreement. The Servicer shall
immediately notify the Trustee, the Co-Trustee, the Owner Trustee and each
Noteholder and Certificateholder if a claim is made by a third party with
respect to this Agreement, and the Servicer shall assume (with the consent of
the Trustee) the defense of any such claim and pay all expenses in connection
therewith, including reasonable counsel fees, and promptly pay, discharge and
satisfy any judgment or decree which may be entered against the Servicer, the
Claims Administrator, the Trustee, the Owner Trustee and/or Noteholder or
Certificateholder in respect of such claim. The Trustee may reimburse the
Servicer from amounts otherwise payable to the Holder of the GP Interest for all
amounts advanced by it pursuant to the preceding sentence except when the Claim
relates directly to the failure of the Servicer or the Claims Administrator to
service and administer the Mortgages in compliance with the terms of this
Agreement.
(b) The Representative agrees to indemnify and hold the
Trustee, the Co-Trustee, the Owner Trustee and each Noteholder and
Certificateholder harmless against any and all claims, losses, penalties, fines,
forfeitures, legal fees and related costs, judgments, and any other costs, fees
and expenses that the Trustee, the Co-Trustee, the Owner Trustee and any
Noteholder or Certificateholder may sustain in any way related to the failure of
the Servicer, if it is an affiliate thereof, or the failure of the
Representative to perform their respective duties in compliance with the terms
of this Agreement and in the best interests of the Noteholders and the
Certificateholders. The Representative shall immediately notify the Trustee, the
Owner Trustee and each Noteholder and Certificateholder if a claim is made by a
third party with respect to this Agreement, and the Representative shall assume
(with the consent of the Trustee) the defense of any such claim and pay all
expenses in connection therewith, including reasonable counsel fees, and
promptly pay, discharge and satisfy any judgment or decree which may be entered
against the Servicer, the Representative, the Trustee, the Co-Trustee, the Owner
Trustee and/or Noteholder or Certificateholder in respect of such claim. The
Trustee may reimburse the Representative from amounts otherwise payable to the
Holder of the GP Interest for all amounts advanced by it pursuant to the
preceding sentence except when the claim relates directly to the
Representative's indemnification pursuant to Section 2.05 and Section 3.03 or to
the failure of the Servicer, if it is an affiliate of the Representative to
perform its obligations to service and administer the Mortgages in compliance
with the terms of this Agreement, or the failure of the Representative to
perform its duties in compliance with the terms of this Agreement and in the
best interests of the Certificate Insurer, the Noteholders and the
Certificateholders.
Section 9.02 MERGER OR CONSOLIDATION OF THE REPRESENTATIVE,
THE SERVICER AND THE CLAIMS ADMINISTRATOR.
The Servicer, the Representative and the Claims
Administrator will each keep in full effect its existence, rights and franchises
as a corporation, and will obtain and preserve its qualification to do business
as a foreign corporation, in each jurisdiction necessary to protect the validity
and enforceability of this Agreement or any of the Mortgage Loans and to perform
its duties under this Agreement.
Any Person into which the Servicer, the Representative may
be merged or consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Servicer, the Representative or the
Claims Administrator shall be a party, or any Person succeeding to the business
of the Servicer, the Representative or the Claims Administrator, shall be an
established mortgage loan servicing institution that has a net worth of at least
$15,000,000 and a valid Contract of Insurance and shall be the successor of the
Servicer, the Representative or the Claims Administrator, as applicable,
hereunder, without the execution or filing of any paper or any further act on
the part of any of the parties hereto, anything herein to the contrary
notwithstanding. The Servicer, the Representative or the Claims Administrator
shall send notice of any such merger or consolidation to the Issuer, the Owner
Trustee, the Trustee, and the Co-Trustee.
Section 9.03 LIMITATION ON LIABILITY OF THE SERVICER AND
OTHERS.
The Servicer and the Claims Administrator and any director,
officer, employee or agent of the Servicer and the Claims Administrator may rely
on any document of any kind which it in good faith reasonably believes to be
genuine and to have been adopted or signed by the proper authorities respecting
any matters arising hereunder. Subject to the terms of Section 9.01 herein, the
Servicer and the Claims Administrator shall have no obligation to appear with
respect to, prosecute or defend any legal action which is not incidental to the
Servicer's duty to service the Mortgage Loans in accordance with this Agreement.
Section 9.04 SERVICER AND CLAIMS ADMINISTRATOR NOT TO
RESIGN.
The Servicer and the Claims Administrator shall not assign
this Agreement nor resign from the obligations and duties hereby imposed on it
except by mutual consent of the Servicer, the Claims Administrator, the Owner
Trustee and the Trustee, or upon the determination that the Servicer's or Claims
Administrator's duties hereunder are no longer permissible under applicable law
and such incapacity cannot be cured by the Servicer or the Claims Administrator.
Any such determination permitting the resignation of the Servicer and the Claims
Administrator shall be evidenced by a written Opinion of Counsel (who may be
counsel for the Servicer and the Claims Administrator) to such effect delivered
to the Trustee, the Co-Trustee and the Owner Trustee, which Opinion of Counsel
shall be in form and substance acceptable to the Trustee and the Owner Trustee.
No such resignation shall become effective until a successor has assumed the
Servicer's or the Claims Administrator's responsibilities and obligations
hereunder in accordance with Section 10.02.
Section 9.05 APPOINTMENT OF ASSISTANT CLAIMS ADMINISTRATOR.
The Claims Administrator hereby appoints TMS Mortgage Inc.,
a New Jersey corporation, as Assistant Claims Administrator and, in such
capacity, the Assistant Claims Administrator shall have all the rights, powers,
obligations and duties of the Claims Administrator in acting in such capacity.
Notwithstanding such appointment, the Claims Administrator shall remain
obligated to the Trustee, the Co-Trustee, the Owner Trustee, the Noteholders and
the Certificateholders in accordance with the provisions of this Agreement.
ARTICLE X
DEFAULT
Section 10.01 SERVICER DEFAULT.
(a) In case one or more of the following Servicer
Defaults shall occur and be continuing, that is to say:
(i) (A) [reserved]; (B) the failure by the
Servicer to make any required Servicing Advance, to the extent
such failure materially and adversely affects the interests of
the Noteholders or the Certificateholders; (C) the failure by the
Servicer to make any required Monthly Advance; (D) the failure by
the Servicer to remit any Compensating Interest; (E) the failure
by the Servicer to pay the FHA Insurance Premium relating to any
FHA Loan or (F) any failure by the Servicer or the Claims
Administrator to remit to Noteholders or the Certificateholders,
or to the Trustee for the benefit of the Noteholders or the
Certificateholders, any payment required to be made under the
terms of this Agreement which, except with respect to FHA
Payments to which no grace period shall apply, continues
unremedied after the date upon which written notice of such
failure, requiring the same to be remedied, shall have been given
to the Servicer by the Trustee or to the Servicer and the Trustee
by any Noteholder or Certificateholder; or
(ii) failure by the Servicer, the Claims
Administrator or the Representative duly to observe or perform,
in any material respect, any other covenants, obligations or
agreements of the Servicer, the Claims Administrator or the
Representative as set forth in this Agreement, which failure
continues unremedied for a period of 60 days after the date on
which written notice of such failure, requiring the same to be
remedied, shall have been given to the Servicer, the Claims
Administrator or the Representative, as the case may be, by the
Trustee or to the Servicer, the Claims Administrator or the
Representative, as the case may be, and the Trustee by any
Noteholder or Certificateholders; or
(iii) a decree or order of a court or agency or
supervisory authority having jurisdiction for the appointment of
a conservator or receiver or liquidator in any insolvency,
readjustment of debt, marshalling of assets and liabilities or
similar proceedings, or for the winding-up or liquidation of its
affairs, shall have been entered against the Servicer or the
Claims Administrator and such decree or order shall have remained
in force, undischarged or unstayed for a period of 60 days; or
(iv) the Servicer or the Claims Administrator
shall consent to the appointment of a conservator or receiver or
liquidator in any insolvency, readjustment of debt, marshalling
of assets and liabilities or similar proceedings of or relating
to the Servicer or the Claims Administrator or of or relating to
all or substantially all of the Servicer's or the Claims
Administrator's property; or
(v) the Servicer or the Claims Administrator shall
admit in writing its inability to pay its debts as they become
due, file a petition to take advantage of any applicable
insolvency or reorganization statute, make an assignment for the
benefit of its creditors, or voluntarily suspend payment of its
obligations;
(b) then, and in each and every such case, so long as
an Event of Default shall not have been remedied, and in the case of clause (i)
above (except for clause (i)(C) or, with respect to FHA Payments, clause
(i)(F)), if such Servicer Default shall not have been remedied within 30 days
after the Servicer or the Claims Administrator has received notice of such
Servicer Default, (x) with respect solely to clause (i)(C) above, if such
Monthly Advance is not made earlier than 4:00 p.m. New York time on the
Determination Date, the Trustee shall give immediate telephonic notice of such
failure to a Servicing Officer of the Servicer or the Claims Administrator, as
the case may be, and, unless such failure is cured, by receipt of payment, by
12:00 Noon New York time on the following Business Day, the Trustee (or, with
respect to the FHA Loans, the Co-Trustee) shall immediately assume, pursuant to
Section 10.02 hereof, the duties of a successor Servicer and the Claims
Administrator; and (y) in the case of clauses (i)(A), (i)(B), (i)(D), (i)(E),
(i)(F), (ii), (iii), (iv) and (v), the Holders of Notes evidencing not less than
a majority of the principal amount of the Notes then outstanding, or the Holders
(as defined in the Trust Agreement) of Certificates evidencing not less than a
majority of the outstanding Certificate Balance, as applicable, in the case of
any default which does not adversely affect the Noteholders, by notice in
writing to the Servicer and the Claims Administrator, may, in addition to
whatever rights such Noteholders or Certificateholders may have at law or equity
including damages, injunctive relief and specific performance, in each case
commence termination of all the rights and obligations of the Servicer and the
Claims Administrator under this Agreement and in and to the Mortgage Loans and
the proceeds thereof, as Servicer and the Claims Administrator. Upon receipt by
the Servicer and the Claims Administrator of a second written notice from such
Noteholders or Certificateholders, as the case may be, stating that they or it
intend to terminate the Servicer and the Claims Administrator as a result of
such Servicer Default, all authority and power of the Servicer and the Claims
Administrator under this Agreement, whether with respect to the Mortgage Loans
or otherwise, shall, subject to Section 10.02, pass to and be vested in the
Trustee or its designee (or, with respect to the FHA Loans, the Co-Trustee or
its designee) and the Trustee (or, with respect to the FHA Loans, the
Co-Trustee) is hereby authorized and empowered to execute and deliver, on behalf
of the Servicer and the Claims Administrator, as attorney-in-fact or otherwise,
any and all documents and other instruments and do or cause to be done all other
acts or things necessary or appropriate to effect the purposes of such notice of
termination, including, but not limited to, the transfer and endorsement or
assignment of the Mortgage Loans and related documents. The Servicer and the
Claims Administrator agree to cooperate with the Trustee and the Co-Trustee in
effecting the termination of the Servicer's and the Claims Administrator's
responsibilities and rights hereunder, including, without limitation, the
transfer to the Trustee or its designee for administration by it of all amounts
which shall at the time be credited by the Servicer to each Principal and
Interest Account or thereafter received with respect to the Mortgage Loans.
Section 10.02 TRUSTEE AND CO-TRUSTEE TO ACT; APPOINTMENT OF
SUCCESSOR.
On and after the time the Servicer or the Claims
Administrator receives a notice of termination pursuant to Section 10.01 or the
Trustee receives the resignation of the Servicer and the Claims Administrator
evidenced by an Opinion of Counsel pursuant to Section 9.04 or the Servicer and
the Claims Administrator are removed as servicer and claims administrator
pursuant to this Article X, the Trustee (or, with respect to the FHA Loans, the
Co-Trustee) shall be the successor in all respects to the Servicer in its
capacity as servicer and the Claims Administrator in its capacity as claims
administrator under this Agreement and the transactions set forth or provided
for herein and shall be subject to all the responsibilities, duties and
liabilities relating thereto placed on the Servicer and the Claims Administrator
by the terms and provisions hereof, provided, however, that the Trustee and the
Co-Trustee shall not be liable for any actions of any servicer or claims
administrator prior to it, and that the Trustee and the Co- Trustee shall not be
obligated to make advances or payments pursuant to Sections 7.09, 7.10, 4.05,
4.10 or 4.14 but only to the extent the Trustee or the Co-Trustee, as the case
may be, determines reasonably and in good faith that such advances would not be
recoverable, such determination to be evidenced with respect to each such
advance by a certification of a Responsible Officer of the Trustee or the
Co-Trustee, as the case may be. As compensation therefor, the Trustee (or, with
respect to the FHA Loans, the Co-Trustee) shall be entitled to all funds
relating to the Mortgage Loans which the Servicer and Claims Administrator would
have been entitled to receive from the Principal and Interest Account pursuant
to Section 4.04 if the Servicer had continued to act as servicer and claims
administrator hereunder, together with other servicing compensation in the form
of assumption fees, late payment charges, the Contingency Fee or otherwise as
provided in Sections 7.01 and 7.03.
Notwithstanding the above, the Trustee or the Co-Trustee
may, if it shall be unwilling to so act, or shall, if it is unable to so act or
if the Holders of Notes evidencing not less than a majority of the principal
amount of the Notes then outstanding, so request in writing to the Trustee or
the Co-Trustee, appoint, or petition a court of competent jurisdiction to
appoint, any established mortgage loan servicing institution, that has a net
worth of not less than $15,000,000 and which is approved as a servicer by FNMA
and FHLMC (and, in the case of FHA Loans, is a Title I approved lender pursuant
to FHA Regulations) as the successor to the Servicer and the Claims
Administrator hereunder in the assumption of all or any part of the
responsibilities, duties or liabilities of the Servicer and the Claims
Administrator hereunder. Any collections received by the Servicer and the Claims
Administrator after removal or resignation shall be endorsed by it to the
Trustee and remitted directly to the Trustee or, at the direction of the
Trustee, to the successor servicer. The compensation of any successor servicer
and claims administrator (including, without limitation, the Trustee and
Co-Trustee) so appointed shall be the aggregate Servicing Fees, together with
the Contingency Fee and other servicing compensation in the form of assumption
fees, late payment charges or otherwise. In the event the Trustee or Co-Trustee
is required to solicit bids as provided herein, the Trustee or Co-Trustee shall
solicit, by public announcement, bids from housing and home finance
institutions, banks and mortgage servicing institutions meeting the
qualifications set forth above. Such public announcement shall specify that the
successor servicer and claims administrator shall be entitled to, with respect
to the Mortgage Loans each would be servicing, the full amount of the aggregate
Servicing Fees and Contingency Fee relating to such Mortgage Loans as servicing
compensation, together with the other servicing compensation in the form of
assumption fees, late payment charges or otherwise. Within thirty days after any
such public announcement, the Trustee or Co-Trustee shall negotiate and effect
the sale, transfer and assignment of the servicing rights and responsibilities
hereunder to the qualified party submitting the highest qualifying bid. The
Trustee or Co-Trustee shall deduct from any sum received by the Trustee or
Co-Trustee from the successor to the Servicer and Claims Administrator in
respect of such sale, transfer and assignment all costs and expenses of any
public announcement and of any sale, transfer and assignment of the servicing
rights and responsibilities hereunder and the amount of any unreimbursed
Servicing Advances and Monthly Advances. After such deductions, the remainder of
such sum shall be paid by the Trustee or Co-Trustee to the Servicer and Claims
Administrator at the time of such sale, transfer and assignment to the
Servicer's and Claims Administrator's successor. The Trustee or Co-Trustee and
such successor shall take such action, consistent with this Agreement, as shall
be necessary to effectuate any such succession. The Servicer and Claims
Administrator agree to cooperate with the Trustee or Co-Trustee and any
successor servicer and claims administrator in effecting the termination of the
Servicer's and Claims Administrator's servicing responsibilities and rights
hereunder and shall promptly provide the Trustee or Co-Trustee or such successor
servicer, as applicable, all documents and records reasonably requested by it to
enable it to assume the Servicer's and Claims Administrator's functions
hereunder and shall promptly also transfer to the Trustee or Co-Trustee or such
successor servicer and claims administrator, as applicable, all amounts which
then have been or should have been deposited in the Principal and Interest
Account or Reserve Account by the Servicer and Claims Administrator or which are
thereafter received with respect to the Mortgage Loans. Neither the Trustee, the
Co-Trustee nor any other successor servicer or claims administrator shall be
held liable by reason of any failure to make, or any delay in making, any
distribution hereunder or any portion thereof caused by (i) the failure of the
Servicer and Claims Administrator to deliver, or any delay in delivering, cash,
documents or records to it, or (ii) restrictions imposed by any regulatory
authority having jurisdiction over the Servicer and Claims Administrator
hereunder. No appointment of a successor to the Servicer and Claims
Administrator hereunder shall be effective until written notice of such proposed
appointment shall have been provided by the Trustee and the Owner Trustee to
each Noteholder and each Certificateholder, and the Trustee shall have consented
thereto. Neither the Trustee nor the Co-Trustee shall resign as servicer until a
successor servicer has been appointed.
Pending appointment of a successor to the Servicer and the
Claims Administrator hereunder, the Trustee and the Co-Trustee shall act in such
capacity as hereinabove provided. In connection with such appointment and
assumption, the Trustee and the Co-Trustee may make such arrangements for the
compensation of such successor out of payments on Mortgage Loans as it and such
successor shall agree; provided, however, that no such compensation shall be in
excess of that permitted the Servicer and Claims Administrator pursuant to
Section 7.03 or otherwise as provided in this Agreement. The Servicer, the
Claims Administrator, the Trustee, the Co-Trustee, any Custodian and such
successor shall take such action, consistent with this Agreement, as shall be
necessary to effectuate any such succession.
Section 10.03 WAIVER OF DEFAULTS.
The Holders of Notes evidencing not less than a majority of
the outstanding principal amount of the Notes, or the Holders (as defined in the
Trust Agreement) of Certificates evidencing not less than a majority of the
outstanding Certificate Balance, as applicable, in the case of any default which
does not adversely affect the Noteholders, may, on behalf of all Noteholders and
Certificateholders, waive any events permitting removal of the Servicer and the
Claims Administrator as servicer pursuant to this Article X, provided, however,
that such Noteholders or Certificateholders, as the case may be, may not waive a
default in making a required distribution on a Note or Certificate without the
consent of the holder of such Note or Certificate, as the case may be. Upon any
waiver of a past default, such default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been remedied for every
purpose of this Agreement. No such waiver shall extend to any subsequent or
other default or impair any right consequent thereto except to the extent
expressly so waived.
Section 10.04 [RESERVED].
Section 10.05 CONTROL BY MAJORITY SECURITYHOLDERS.
The Majority Securityholders may direct the time, method and place of
conducting any proceeding relating to the Owner Trust Estate or for any remedy
available to the Trustee or the Co-Trustee with respect to the Owner Trust
Estate or exercising any trust or power conferred on the Trustee or the
Co-Trustee with respect to the Owner Trust Estate, PROVIDED THAT:
(a) such direction shall not be in conflict with
any rule of law or with this Agreement;
(b) the Trustee or the Co-Trustee, as the case may
be, shall have been provided with indemnity satisfactory to it; and
(c) the Trustee and the Co-Trustee may take any other
action deemed proper by the Trustee and the Co-Trustee which is not
inconsistent with such direction; provided, however, that the Trustee
and the Co-Trustee need not take any action which it determines might
involve it in liability or may be unjustly prejudicial to the Holders
not so directing.
ARTICLE XI
TERMINATION
Section 11.01 OPTIONAL PURCHASE OF ALL MORTGAGE Loans. (a)
On the last day of any Due Period immediately preceding a Determination Date as
of which the then outstanding Pool Balance is 10% or less of the sum of (i) the
aggregate Principal Balance of the Initial Mortgage Loans as of the Cut-off Date
and (ii) the Original Pre-Funded Amount, the Servicer shall have the option to
purchase the Owner Trust Estate, other than the Trust Accounts and the
Certificate Distribution Account. To exercise such option, the Servicer shall
deposit pursuant to Section 4.03 in the Principal and Interest Account an amount
which, when added to the amounts on deposit in the Principal and Interest
Account for such Remittance Date, equals the sum of (a) the unpaid principal
amount of the then outstanding Class A- Notes, plus accrued and unpaid interest
thereon, plus (b) the Certificate Balance plus accrued and unpaid interest
thereon. The Class A- Notes and the Certificates will be redeemed concurrently
therewith.
(b) Upon any sale of the assets of the Trust pursuant to Section
9.2 of the Trust Agreement, the Servicer shall instruct the Trustee to deposit
the proceeds from such sale after all payments and reserves therefrom (including
the expenses of such sale) have been made (the "Insolvency Proceeds") in the
Principal and Interest Account. On the Remittance Date on which the Insolvency
Proceeds are deposited in the Principal and Interest Account (or, if such
proceeds are not so deposited on a Remittance Date, on the Remittance Date
immediately following such deposit), the Servicer shall instruct the Trustee to
make, and the Trustee shall make, the following deposits and distributions
(after the application on such Remittance Date of the Total Distribution Amount
pursuant to Section 7.05) from the Insolvency Proceeds and any funds remaining
on deposit in the Reserve Account (including the proceeds of any sale of
investments therein):
(i) to the Note Distribution Account, any portion
of the Noteholders' Interest Distributable Amount not otherwise
deposited into the Note Distribution Account on such Remittance
Date;
(ii) to the Note Distribution Account, the
outstanding principal balance of the Notes (after giving effect
to the reduction in the outstanding principal balance of the
Notes to result from the deposits made in the Note Distribution
Account on such Remittance Date);
(iii) to the Owner Trustee for deposit in the
Certificate Distribution Account, any portion of the
Certificateholders' Interest Distributable Amount not otherwise
deposited into the Certificate Distribution Account on such
Remittance Date; and
(iv) to the Owner Trustee for deposit in the
Certificate Distribution Account, the Certificate Balance and any
Certificateholders' Principal Carryover Shortfall Amount (after
giving effect to the reduction in the Certificate Balance to
result from the deposits made in the Certificate Distribution
Account on such Remittance Date).
Any Insolvency Proceeds remaining after the deposits described above shall be
paid to the GP Holder.
(c) Notice of any termination of the Trust shall be given by
the Servicer to the Owner Trustee, the Trustee and the Rating Agencies as soon
as practicable after the Servicer has received notice thereof.
(d) Following the satisfaction and discharge of the
Indenture and the payment in full of the principal of and interest on the Notes,
the Certificateholders will succeed to the rights of the Noteholders hereunder
and the Owner Trustee will succeed to the rights of, and assume the obligations
of, the Trustee pursuant to this Agreement.
ARTICLE XII
ADMINISTRATIVE DUTIES OF THE SERVICER
Section 12.01 ADMINISTRATIVE DUTIES.
(a) DUTIES WITH RESPECT TO THE INDENTURE AND DEPOSITORY
AGREEMENTS. The Servicer shall perform all its duties and the duties of the
Issuer under the Depository Agreements. In addition, the Servicer shall consult
with the Owner Trustee as the Servicer deems appropriate regarding the duties of
the Issuer under the Indenture and the Depository Agreements. The Servicer shall
monitor the performance of the Issuer and shall advise the Owner Trustee when
action is necessary to comply with the Issuer's duties under the Indenture and
the Depository Agreements. The Servicer shall prepare for execution by the
Issuer or shall cause the preparation by other appropriate Persons of all such
documents, reports, filings, instruments, certificates and opinions as it shall
be the duty of the Issuer to prepare, file or deliver pursuant to the Indenture
and the Depository Agreements. In furtherance of the foregoing, the Servicer
shall take all appropriate action that is the duty of the Issuer to take
pursuant to the Indenture and the Depository Agreements.
(b) DUTIES WITH RESPECT TO THE ISSUER. (i) In addition to
the duties of the Servicer set forth in this Agreement or any of the Basic
Documents, the Servicer shall perform such calculations and shall prepare for
execution by the Issuer or the Owner Trustee or shall cause the preparation by
other appropriate Persons of all such documents, reports, filings, instruments,
certificates and opinions as it shall be the duty of the Issuer or the Owner
Trustee to prepare, file or deliver pursuant to this Agreement or any of the
Basic Documents, and at the request of the Owner Trustee shall take all
appropriate action that it is the duty of the Issuer to take pursuant to this
Agreement or any of the Basic Documents. In accordance with the directions of
the Owner Trustee, the Servicer shall administer, perform or supervise the
performance of such other activities in connection with the Collateral
(including the Basic Documents) as are not covered by any of the foregoing
provisions and as are expressly requested by the Owner Trustee and are
reasonably within the capability of the Servicer.
(ii) Notwithstanding anything in this Agreement or any of the
Basic Documents to the contrary, the Servicer shall be responsible for promptly
notifying the Owner Trustee in the event that any withholding tax is imposed on
the Issuer's payments (or allocations of income) to an Owner (as defined in the
Trust Agreement) as contemplated in [Section 5.2(c)] of the Trust Agreement. Any
such notice shall specify the amount of any withholding tax required to be
withheld by the Owner Trustee pursuant to such provision.
(iii) Notwithstanding anything in this Agreement or the Basic
Documents to the contrary, the Servicer shall be responsible for performance of
the duties of the Owner Trustee and the holder of the GP Interest set forth in
[Sections 6.2, 6.3, 6.4. 6.5 and 6.6] of the Trust Agreement with respect to,
among other things, accounting and reports to Owners (as defined in the Trust
Agreement); PROVIDED, HOWEVER, that the Owner Trustee shall retain
responsibility for the distribution of the Schedule K-1s necessary to enable
each Certificateholder to prepare its federal and state income tax returns.
(iv) The Servicer shall perform the duties of the Servicer
specified in [Section 10.2] of the Trust Agreement required to be performed in
connection with the resignation or removal of the Owner Trustee, and any other
duties expressly required to be performed by the Servicer under this Agreement
or any of the Basic Documents.
(v) In carrying out the foregoing duties or any of its other
obligations under this Agreement, the Servicer may enter into transactions with
or otherwise deal with any of its Affiliates; PROVIDED, HOWEVER, that the terms
of any such transactions or dealings shall be in accordance with any directions
received from the Issuer and shall be, in the Servicer's opinion, no less
favorable to the Issuer in any material respect.
(c) TAX MATTERS. The Servicer shall prepare and file, on
behalf of the holder of the GP Interest, all tax returns, tax elections,
financial statements and such annual or other reports of the Issuer as are
necessary for preparation of tax reports as provided in Article V of the Trust
Agreement, including without limitation forms 1099 and 1066. All tax returns
will be signed by the holder of the GP Interest.
(d) NON-MINISTERIAL MATTERS. With respect to matters that in
the reasonable judgment of the Servicer are non-ministerial, the Servicer shall
not take any action pursuant to this Article X unless within a reasonable time
before the taking of such action, the Servicer shall have notified the Owner
Trustee and the Trustee of the proposed action and the Owner Trustee and, with
respect to items (A), (B), (C) and (D) below, the Trustee shall not have
withheld consent or provided an alternative direction. For the purpose of the
preceding sentence, "non-ministerial matters" shall include:
(A) the amendment of or any supplement to the
Indenture;
(B) the initiation of any claim or lawsuit by the
Issuer and the compromise of any action, claim or lawsuit brought
by or against the Issuer (other than in connection with the
collection of the Mortgage Loans);
(C) the amendment, change or modification of this
Agreement or any of the Basic Documents;
(D) the appointment of successor Note Registrars,
successor Paying Agents and successor Trustees pursuant to the
Indenture or the appointment of Successor Servicers or the
consent to the assignment by the Note Registrar, Paying Agent or
Trustee of its obligations under the Indenture; and
(E) the removal of the Trustee.
(e) EXCEPTIONS. Notwithstanding anything to the contrary in this
Agreement, except as expressly provided herein or in the other Basic Documents,
the Servicer, in its capacity hereunder, shall not be obligated to, and shall
not, (1) make any payments to the Noteholders or Certificateholders under the
Basic Documents, (2) sell the Indenture Trust Estate pursuant to [Section 5.4]
of the Indenture, (3) take any other action that the Issuer directs the Servicer
not to take on its behalf or (4) in connection with its duties hereunder assume
any indemnification obligation of any other Person.
Section 12.02 RECORDS. The Servicer shall maintain appropriate
books of account and records relating to services performed under this
Agreement, which books of account and records shall be accessible for inspection
by the Issuer at any time during normal business hours.
Section 12.03 ADDITIONAL INFORMATION TO BE FURNISHED TO THE
ISSUER. The Servicer shall furnish to the Issuer from time to time such
additional information regarding the Collateral as the Issuer shall reasonably
request.
ARTICLE XIII
MISCELLANEOUS PROVISIONS
Section 13.01 ACTS OF NOTEHOLDERS AND CERTIFICATEHOLDERS.
Except as otherwise specifically provided herein, whenever
Noteholder or Certificateholder action, consent or approval is required under
this Agreement, such action, consent or approval shall be deemed to have been
taken or given on behalf of, and shall be binding upon, all Noteholders and
Certificateholders if the Majority Securityholders agree to take such action or
give such consent or approval.
Section 13.02 AMENDMENT.
This Agreement may be amended by the [_____], the Servicer
and the Owner Trustee, with the consent of the Trustee (which consent may not be
unreasonably withheld), but without the consent of any of the Noteholders or the
Certificateholders, to cure any ambiguity or defect, to correct or supplement
any provisions in this Agreement or for the purpose of adding any provisions to
or changing in any manner or eliminating any of the provisions in this Agreement
or of modifying in any manner the rights of the Noteholders or the
Certificateholders; PROVIDED, HOWEVER, that such action shall not, as evidenced
by an Opinion of Counsel delivered to the Owner Trustee and the Trustee,
adversely affect in any material respect the interests of any Noteholder or
Certificateholder.
This Agreement may also be amended from time to time by the
[_____], the Servicer and the Owner Trustee, with the consent of the Trustee and
the consent of the Majority Securityholders the purpose of adding any provisions
to or changing in any manner or eliminating any of the provisions of this
Agreement or of modifying in any manner the rights of the Noteholders or the
Certificateholders; PROVIDED, HOWEVER, that no such amendment shall (a) increase
or reduce in any manner the amount of, or accelerate or delay the timing of,
collections of payments on Mortgage Loans or distributions that shall be
required to be made for the benefit of the Noteholders or the Certificateholders
or (b) reduce the aforesaid percentage of the Outstanding Amount of the Notes
and the Certificate Balance, the Holders of which are required to consent to any
such amendment, without the consent of the Holders of all the outstanding Notes
and the Holders (as defined in the Trust Agreement) of all the outstanding
Certificates of each class affected thereby.
Prior to the execution of any such amendment or consent, the
Owner Trustee shall furnish written notification of the substance of such
amendment or consent to the Rating Agencies. Promptly after the execution of any
such amendment or consent, the Owner Trustee shall furnish written notification
of the substance of such amendment or consent to each Certificateholder and the
Trustee.
It shall not be necessary for the consent of
Certificateholders or Noteholders pursuant to this Section to approve the
particular form of any proposed amendment or consent, but it shall be sufficient
if such consent shall approve the substance thereof.
Prior to the execution of any amendment to this Agreement,
the Owner Trustee and the Trustee shall be entitled to receive and rely upon an
Opinion of Counsel stating that the execution of such amendment is authorized or
permitted by this Agreement. The Owner Trustee and the Trustee may, but shall
not be obligated to, enter into any such amendment which affects the Owner
Trustee's or the Trustee's, as applicable, own rights, duties or immunities
under this Agreement or otherwise.
Section 13.03 RECORDATION OF AGREEMENT.
To the extent permitted by applicable law, this Agreement is
subject to recordation in all appropriate public offices for real property
records in all of the counties or other comparable jurisdictions in which any or
all of the properties subject to the Mortgages are situated, and in any other
appropriate public recording office or elsewhere, such recordation to be
effected by the Servicer at the Noteholders and the Certificateholders' expense
on direction of the Majority Securityholders, but only when accompanied by an
Opinion of Counsel to the effect that such recordation materially and
beneficially affects the interests of the Noteholders and the Certificateholders
or is necessary for the administration or servicing of the Mortgage Loans.
Section 13.04 DURATION OF AGREEMENT.
This Agreement shall continue in existence and effect until
terminated as herein provided.
Section 13.05 GOVERNING LAW.
THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS, WITHOUT
GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW.
Section 13.06 NOTICES.
All demands, notices and communications hereunder shall be
in writing and shall be deemed to have been duly given if personally delivered
at or mailed by overnight mail, certified mail or registered mail, postage
prepaid, to (i) in the case of the Representative, the Servicer, the Claims
Administrator, and each Originator, The Money Store Inc., 3301 C Street,
Sacramento, California 95816, Attention: Executive Vice President, or such other
addresses as may hereafter be furnished to the Noteholders and the
Certificateholders in writing by the Representative and the Servicer, (ii) in
the case of the Trustee, [Name and Address of Trustee], (iii) in the case of the
Issuer or the Owner Trustee [Name and Address of Owner Trustee], (iv) in the
case of Moody's, to Moody's Investors Service, Home Equity Group, 99 Church
Street, 4th Floor, New York, New York 10007, (v) in the case of S&P, to Standard
& Poor's Corporation, 25 Broadway, 20th Floor, New York, New York 10004,
Attention: Residential Mortgages and, (vi) in the case of the Co-Trustee, [Name
and Address of Co-Trustee]. Any such notices shall be deemed to be effective
with respect to any party hereto upon the receipt of such notice by such party,
except that notices to the Certificateholders shall be effective upon mailing or
personal delivery.
Section 13.07 SEVERABILITY OF PROVISIONS.
If any one or more of the covenants, agreements, provisions
or terms of this Agreement shall be held invalid for any reason whatsoever, then
such covenants, agreements, provisions or terms shall be deemed severable from
the remaining covenants, agreements, provisions or terms of this Agreement and
shall in no way affect the validity or enforceability of the other covenants,
agreements, provisions or terms of this Agreement.
Section 13.08 NO PARTNERSHIP.
Nothing herein contained shall be deemed or construed to
create a co-partnership or joint venture between the parties hereto and the
services of the Servicer shall be rendered as an independent contractor and not
as agent for the Noteholders or the Certificateholders.
Section 13.09 COUNTERPARTS.
This Agreement may be executed in one or more counterparts
and by the different parties hereto on separate counterparts, each of which,
when so executed, shall be deemed to be an original; such counterparts,
together, shall constitute one and the same agreement.
Section 13.10 SUCCESSORS AND ASSIGNS.
This Agreement shall inure to the benefit of and be binding
upon the Representative, the Servicer, the Originators, the Issuer, the Trustee,
the Co-Trustee, the Owner Trustee, the Noteholders and the Certificateholders
and their respective successors and assigns.
Section 13.11 HEADINGS.
The headings of the various sections of this Agreement have
been inserted for convenience of reference only and shall not be deemed to be
part of this Agreement.
Section 13.12 ASSIGNMENT TO TRUSTEE. The Seller hereby
acknowledges and consents to any mortgage, pledge, assignment and grant of a
security interest by the Issuer to the Trustee pursuant to the Indenture for the
benefit of the Noteholders of all right, title and interest of the Issuer in, to
and under the Mortgage Loans and/or the assignment of any or all of the Issuer's
rights and obligations hereunder to the Trustee.
Section 13.13 NONPETITION COVENANT. (a) Notwithstanding any
prior termination of this Agreement, the Servicer and the Seller shall not,
prior to the date which is one year and one day after the termination of this
Agreement with respect to the Issuer, acquiesce, petition or otherwise invoke or
cause the Issuer to invoke the process of any court or government authority for
the purpose of commencing or sustaining a case against the Issuer under any
Federal or state bankruptcy, insolvency or similar law or appointing a receiver,
liquidator, assignee, trustee, custodian, sequestrator or other similar official
of the Issuer or any substantial part of its property, or ordering the winding
up or liquidation of the affairs of the Issuer.
(b) Notwithstanding any prior termination of this Agreement,
the parties hereto shall not, prior to the date that is one year and one day
after the termination of this Agreement with respect to [_______], acquiesce to,
petition or otherwise invoke or cause [_______] to invoke the process of any
court or government authority for the purpose of commencing or sustaining a case
against [_______] under any federal or state bankruptcy, insolvency or similar
law, appointing a receiver, liquidator, assignee, trustee, custodian,
sequestrator, or other similar official of [_______] or any substantial part of
its property, or ordering the winding up or liquidation of the affairs of
[_______].
Section 13.14 LIMITATION OF LIABILITY OF OWNER TRUSTEE AND
TRUSTEE. (a) Notwithstanding anything contained herein to the contrary, this
Agreement has been countersigned by [Name of Owner Trustee] not in its
individual capacity but solely in its capacity as Owner Trustee of the Issuer
and in no event shall [Name of Owner Trustee] in its individual capacity or,
except as expressly provided in the Trust Agreement, as Owner Trustee have any
liability for the representations, warranties, covenants, agreements or other
obligations of the Issuer hereunder or in any of the certificates, notices or
agreements delivered pursuant hereto, as to all of which recourse shall be had
solely to the assets of the Issuer. For all purposes of this Agreement, in the
performance of its duties or obligations hereunder or in the performance of any
duties or obligations of the Issuer hereunder, the Owner Trustee shall be
subject to, and entitled to the benefits of, the terms and provisions of
Articles VI, VII and VIII of the Trust Agreement.
(b) Notwithstanding anything contained herein to the contrary,
this Agreement has been accepted by ___________________ not in its individual
capacity but solely as Trustee and in no event shall _____________________ have
any liability for the representations, warranties, covenants, agreements or
other obligations of the Issuer hereunder or in any of the certificates, notices
or agreements delivered pursuant hereto, as to all of which recourse shall be
had solely to the assets of the Issuer.
Section 13.15 INDEPENDENCE OF THE SERVICER. For all purposes
of this Agreement, the Servicer shall be an independent contractor and shall not
be subject to the supervision of the Issuer or the Owner Trustee with respect to
the manner in which it accomplishes the performance of its obligations
hereunder. Unless expressly authorized by the Issuer, the Servicer shall have no
authority to act for or represent the Issuer or the Owner Trustee in any way and
shall not otherwise be deemed an agent of the Issuer or the Owner Trustee.
Section 13.16 NOTIFICATION TO RATING AGENCIES.
The Trustee shall give prompt notice to the Rating Agencies
of the occurrence of any of the following events of which it has received
notice: (1) any modification or amendment to this Agreement, (2) any appointment
of a Custodian (other than _____ __________________________), (3) any change of
the Trustee or the Servicer (4) any Servicer Default, and (5) the final payment
of all the Notes and the Certificates. The Servicer shall promptly deliver to
the Rating Agencies a copy of each of the Servicer's Certificates.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered by their respective duly authorized
officers as of the day and year first above written.
THE MONEY STORE _____ TRUST
199__-__
By: ,
not in its individual
capacity but solely as
Owner Trustee on behalf of
the Trust,
By:
Name:
Title:
THE MONEY STORE INC., as
Representative,
Servicer and Claims Administrator
By:
Name:
Title:
[Originators]
By:
Name:
Title:
<PAGE>
Acknowledged and Accepted:
, not
in its individual capacity
but solely as Trustee,
By
Name:
Title:
Acknowledged and Accepted:
,
not in its individual capacity
but solely as Owner Trustee,
By
Name:
Title:
Acknowledged and Accepted:
By
Name:
Title:
<PAGE>
ACCEPTANCE OF CUSTODIAN
________________________________ hereby accepts its appointment
pursuant to Section ___ of the within instrument to serve as Custodian with
respect to the FHA Mortgage Loans. In connection therewith,
________________________________ agrees to be bound by all applicable provisions
of such instrument.
--------------------------------,
as Custodian
By:
Name:
Title:
<PAGE>
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK)
On the ____ day of _____ 199_ before me, a Notary Public in and for
said State, personally appeared ____________________ known to me to be an
officer of ____________________, a New York banking corporation that executed
the within instrument, and also known to me to be the person who executed it on
behalf of said New York banking corporation, and acknowledged to me that such
New York banking corporation, executed the within instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year in this certificate first above written.
Notary Public
My Commission expires
<PAGE>
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On the ____ day of _____ 199_ before me, a Notary Public in and for the
State of New York, personally appeared ____________________ known to me to be
the ______________________ of The Money Store Inc., one of the corporations that
executed the within instrument and also known to me to be the person who
executed it on behalf of said corporation, and acknowledged to me that such
corporation executed the within instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year in this certificate first above written.
Notary Public
My Commission expires
<PAGE>
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On the ____ day of _____ 199_ before me, a Notary Public in and for the
State of New York, personally appeared ____________________ known to me to be
the ______________________ of each Originator listed on Exhibit F to the within
instrument, and also known to me to be the person who executed it on behalf of
each such corporation, and acknowledged to me that each such corporation
executed the within instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year in this certificate first above written.
Notary Public
My Commission expires
<PAGE>
SCHEDULE I
DESCRIPTION OF CERTAIN LITIGATION
None.
<PAGE>
EXHIBIT A
CONTENTS OF MORTGAGE FILE
With respect to each Mortgage Loan, the Mortgage File shall
include a copy of any of the following items delivered to the Trustee (or the
Co-Trustee, in the case of FHA Loans) and an original of any of the other
following items, all of which shall be available for inspection by the
Noteholders and the Certificateholders:
1. The original Mortgage Note, endorsed "Pay to the order
of holder" or "Pay to the order of ______________" and
signed in the name of the Person delivering the note by
a Responsible Officer, with all prior and intervening
endorsements showing a complete chain of endorsement
from the originator to such Person;
2. Either: (i) the original recorded Mortgage, with
evidence of recording thereon, (ii) a copy of the
Mortgage certified as a true copy by a
Responsible Officer where the original has been
transmitted for recording until such time as the
original is returned by the public recording
office or (iii) a copy of the Mortgage certified
by the public recording office in those instances
where the original recorded Mortgage has been
lost.
3. Either (i) the original Assignment of Mortgage
from the Person delivering such Assignment to
"____________________, as Trustee under the Sole
and Servicing Agreement dated as of ________ __,
199_, Series 199_-_" or, in the case of the FHA
Loans, to "_____________, as Co-Trustee under the
FHA and Servicing Agreement dated as of ________
__, 199_, Series 199_- _" with evidence of
recording thereon (provided, however, that where
permitted under the laws of the jurisdiction
wherein the Mortgaged Property is located, the
Assignment of Mortgage may be effected by one or
more blanket assignments for Mortgage Loans
secured by Mortgaged Properties located in the
same county) or (ii) a copy of the Assignment of
Mortgage certified as a true copy by a
Responsible Officer of the Originator where the
original was transmitted for recording (provided,
however, that where the original Assignment of
Mortgage is not being delivered to the Trustee (or
the Co-Trustee, in the case of FHA Loans), each such
Responsible Officer may complete one or more blanket
certificates attaching copies of one or more of such
Assignments of Mortgage relating to the Mortgages
originated by the related
Originator).
4. The original policy of title insurance or, if such
policy has not yet been delivered by the insurer, the
commitment or binder to issue same, or if the
original principal balance of the Mortgage Loan was
less than or equal to $______ or the Mortgage Loan was
not originated by a Originator, other evidence of the
status of title, which shall consist of an attorney's
opinion of title or certificate of title, a preliminary
title report, a property search, a title search, a lot
book report, a property information report or a report
entitled "prelim" or "PIRT" (property information
report), and (ii) proof of hazard insurance in the form
of a hazard insurance policy or hazard insurance policy
endorsement that names the related Originator, its
successors and assigns, as a mortgagee/loss payee, and,
if such endorsement does not show the amount insured by
the related hazard insurance policy, some evidence of
such amount.
5. Originals of all assumption and modification
agreements, if any.
6. Either: (i) original intervening assignments, if
any, showing a complete chain of title from the
originator to the Person delivering such
Assignment, including warehousing assignments,
with recording information thereon, if such
assignments were recorded, (ii) copies of any
assignments certified as true copies by a
Responsible Officer of the Originator where the
original has been transmitted for recording until
such time as the originals are returned by the
public recording office, or (iii) copies of any
assignments certified by the public recording
office in those instances where the original
recorded assignments have been lost.
7. Mortgage Loan closing statement and any other
truth-in-lending or real estate settlement procedure
forms required by law.
8. Residential loan application.
9. Verification of employment and income, and tax returns,
if any.
10. Credit report on the mortgagor.
11. Except with respect to certain Mortgage Loans with
original principal balances of less than $______,
the appraisal made in connection with the
origination of the related Mortgage Loan with
photographs of the subject property and of
comparable properties (if available), constituting
evidence sufficient to indicate that the
Mortgaged Property relates to a Residential
Dwelling and identifying the type thereof.
12. Copy of any Prior Lien.
13. All other papers and records developed or originated by
the Originator or others, required to document the
Mortgage Loan or to service the Mortgage Loan.
<PAGE>
EXHIBIT B
PRINCIPAL AND INTEREST ACCOUNT LETTER AGREEMENT
___________ __, 199_
To: _________________ (the "Depository")
As "Servicer" under the Sale and Servicing Agreement, dated as
of ________ __, 199_), TMS Asset Backed Notes and Asset Backed Certificates,
Series 199_-_ (the "Agreement"), we hereby authorize and request you to
establish an account, as a Principal and Interest Account pursuant to Section
4.03 of the Agreement, to be designated as "The Money Store Inc., in trust for
the registered holders of TMS Asset Backed Notes and Asset Backed Certificates
Series 199_-_. All deposits in the account shall be subject to withdrawal
therefrom by order signed by the Servicer. You may refuse any deposit which
would result in violation of the requirement that the account be fully insured
as described below. This letter is submitted to you in duplicate. Please execute
and return one original to us.
THE MONEY STORE INC.
By:
Name:
Title:
The undersigned, as Depository, hereby certifies that the above
described account has been established under Account Number __________, at the
office of the depository indicated above, and agrees to honor withdrawals on
such account as provided above. The amounts deposited at any time in the account
will be insured to the maximum amount provided by applicable law by the Federal
Deposit Insurance Corporation through the Bank Insurance Fund.
By:
Name:
Title:
<PAGE>
EXHIBIT C
FORM OF [TRUSTEE] [CUSTODIAN] INITIAL CERTIFICATION
____________, 199_
The Money Store Inc.
2840 Morris Avenue
Union, New Jersey 07083
TMS Special Holdings, Inc.
2840 Morris Avenue
Union, New Jersey 07083
[Name and Address
of Underwriter]
Re: Sale and Servicing Agreement TMS Asset Backed Notes
and Asset Backed Certificates, Series 199_-_,
dated as of ________ __, 199_ among The Money
Store Inc. as Representative, Servicer and
Claims Administrator, the Originators and
___________, AS TRUSTEE
Gentlemen:
In accordance with Section ____ of the above-captioned Sale and
Servicing Agreement, the undersigned, as [Trustee] [Custodian], hereby certifies
that, except as noted on the attachment hereto, if any (the "Loan Exception
Report"), it has received an Assignment of Mortgage, or a certified copy
thereof, and a Mortgage Note with respect to each [Initial] [Subsequent]
[Mortgage Loan] [FHA Loan] listed in the Mortgage Loan Schedule and the
documents contained therein appear to bear original signatures.
The [Trustee] [Custodian] has made no independent examination of
any such documents beyond the review specifically required in the
above-referenced Pooling and Servicing Agreement. The [Trustee] [Custodian]
makes no representations as to: (i) the validity, legality, sufficiency,
enforceability or genuineness of any such documents or any of the [Mortgage
Loans] [FHA Loans] identified on the Mortgage Loan Schedule, or (ii) the
collectability, insurability, effectiveness or suitability of any such [Mortgage
Loan] [FHA Loan].
Capitalized words and phrases used herein shall have the
respective meanings assigned to them in the above-captioned Sale and Servicing
Agreement.
[--------------------,
as Trustee]
[--------------------------,
as Custodian]
By:
Name:
Title:
<PAGE>
EXHIBIT C-1
FORM OF [TRUSTEE] [CUSTODIAN] INTERIM CERTIFICATION
_______________, 199_
The Money Store Inc.
2840 Morris Avenue
Union, New Jersey 07083
TMS Special Holdings, Inc.
2840 Morris Avenue
Union, New Jersey 07083
[Name and Address
of Underwriter]
Re: Sale and Servicing Agreement TMS Asset Backed Notes
and Asset Backed Certificates, Series
199_-_, dated as of ________ __, 199_ among The
Money Store Inc. as Representative, Servicer
and Claims Administrator, the ORIGINATORS
AND , AS TRUSTEE
Gentlemen:
In accordance with Section 2.05 of the above-referenced Sale and
Servicing Agreement, the undersigned, as [Trustee] [Custodian], hereby certifies
that as to each [Initial] [Subsequent] [Mortgage Loan] [FHA Loan] listed in the
Mortgage Loan Schedule (other than any [Initial] [Subsequent] [Mortgage Loan]
[FHA Loan] paid in full or any [Initial] [Subsequent] [Mortgage Loan] [FHA Loan]
listed on the attachment hereto), it has reviewed the documents delivered to it
pursuant to Section 2.04 (other than items listed in Section 2.04(d)(ii)) of the
Sale and Servicing Agreement and has determined that (i) all such documents are
in its possession, (ii) such documents have been reviewed by it and have not
been mutilated, damaged, torn or otherwise physically altered and relate to such
[Mortgage Loan] [FHA Loan], (iii) based on its examination and only as to the
foregoing documents, the information set forth in the Mortgage Loan Schedule
respecting such [Initial] [Subsequent] [Mortgage Loan] [FHA Loan] is correct and
(iv) each Mortgage Note has been endorsed as provided in Section 2.04 of the
Sale and Servicing Agreement. Further, [except for Mortgaged Properties relating
to [Mortgage Loans] [FHA Loan] identified on the Mortgage Loan Schedule by an
account number beginning with __________ or ________,] each Mortgaged Property
is a Residential Dwelling of the type set forth in the appraisal obtained in
connection with the origination of the related [Mortgage Loan] [FHA Loan], and
for each [Mortgage Loan] [FHA Loan] with an original principal balance in excess
of $______ for which the documents in the possession of the [Trustee]
[Custodian] indicate that the related Originator conducted a drive-by appraisal
pursuant to FHLMC Form 704 or alternative FNMA Form in connection with
originating such [Mortgage Loan] [FHA Loan], such [Mortgage Loan] [FHA Loan] (A)
had an original principal balance not in excess of $______, and (B) has a
Loan-to-Value Ratio less than __% (based solely on the LTV included on the
Mortgage Loan Schedule) and/or an appraisal on FNMA/FHLMC Form 1004 was
performed by the related Originator within one year prior to the origination of
such [Mortgage Loan] [FHA Loan]. The [Trustee] [Custodian] has made no
independent examination of such documents beyond the review specifically
required in the above-referenced Sale and Servicing Agreement. The [Trustee]
[Custodian] makes no representations as to: (i) the validity, legality,
enforceability or genuineness of any such documents contained in each or any of
the [Mortgage Loans] [FHA Loan] identified on the Mortgage Loan Schedule, or
(ii) the collectability, insurability, effectiveness or suitability of any such
[Mortgage Loan] [FHA Loan].
Capitalized words and phrases used herein shall have the
respective meanings assigned to them in the above-captioned Sale and Servicing
Agreement.
[--------------------
as Trustee]
[--------------------------,
as Custodian]
By:
Name:
Title:
<PAGE>
EXHIBIT D
FORM OF [TRUSTEE] [CUSTODIAN] FINAL CERTIFICATION
[date]
[Servicer]
[Noteholders]
[Certificateholders]
[Representative]
Re: Sale and Servicing Agreement dated as of ________
__, 199_ among The Money Store Inc. as
Representative, Servicer and Claims
Administrator, the Originators and __________,
as Trustee, TMS Asset Backed Notes and Asset
Backed Certificates, Series 199_-_
Gentlemen:
In accordance with Section 2.05 of the above-captioned Sale and
Servicing Agreement, the undersigned, as [Trustee] [Custodian], hereby certifies
that, except as noted on the attachment hereto, as to each [Mortgage Loan] [FHA
Loan] listed in the Mortgage Loan Schedule (other than any [Mortgage Loan] [FHA
Loan] paid in full or listed on the attachment hereto) it has reviewed the
documents delivered to it pursuant to Section 2.04 (other than items listed in
Section 2.04(d)(ii)) of the Sale and Servicing Agreement and has determined that
(i) all such documents are in its possession, (ii) such documents have been
reviewed by it and have not been mutilated, damaged, torn or otherwise
physically altered and relate to such [Mortgage Loan] [FHA Loan], (iii) based on
its examination, and only as to the foregoing documents, the information set
forth in the Mortgage Loan Schedule respecting such [Mortgage Loan] [FHA Loan]
is correct and (iv) each Mortgage Note has been endorsed as provided in Section
2.04 of the Sale and Servicing Agreement. Further, [except for Mortgaged
Properties relating to [Mortgage Loans] [FHA Loans] identified on the Mortgage
Loan Schedule by an account number beginning with _______ or _______,] each
Mortgaged Property is a Residential Dwelling of the type set forth in the
appraisal obtained in connection with the origination of the related [Mortgage
Loan] [FHA Loan], and for each [Mortgage Loan] [FHA Loan] with an original
principal balance in excess of $______ for which the documents in the possession
of the [Trustee] [Custodian] indicate that the related Originator conducted a
drive-by appraisal pursuant to FHLMC Form 704 or alternative FNMA Form in
connection with originating such [Mortgage Loan] [FHA Loan], such [Mortgage
Loan] [FHA Loan] (A) had an original principal balance not in excess of $______,
and (B) has a Loan-to-Value Ratio less than __% (based solely on the LTV
included on the Mortgage Loan Schedule) and/or an appraisal on FNMA/FHLMC Form
1004 was performed by the related Originator within one year prior to the
origination of such [Mortgage Loan] [FHA Loan]. The [Trustee] [Custodian]has
made no independent examination of such documents beyond the review specifically
required in the above-referenced Sale and Servicing Agreement. The [Trustee]
[Custodian]makes no representations as to: (i) the validity, legality,
enforceability or genuineness of any such documents contained in each or any of
the [Mortgage Loans] [FHA Loans] identified on the Mortgage Loan Schedule, or
(ii) the collectabil ity, insurability, effectiveness or suitability of any such
[Mortgage Loan] [FHA Loan(s)].
Capitalized words and phrases used herein shall have the
respective meanings assigned to them in the above-captioned Sale and Servicing
Agreement.
[--------------------
as Trustee]
[--------------------------,
as Custodian]
By:
Name:
Title:
<PAGE>
EXHIBIT E
MORTGAGE LOAN SCHEDULE
<PAGE>
EXHIBIT F
LIST OF ORIGINATORS
[To be provided for each transaction]
<PAGE>
EXHIBIT G
REQUEST FOR RELEASE OF DOCUMENTS
To: [Trustee]
[Custodian]
Re: Sale and Servicing Agreement, TMS Asset
Backed Notes and Asset Backed
Certificates, Series 199_-_, DATED AS OF
________ __, 199_
In connection with the administration of the pool of Mortgage
Loans held by you as [Trustee] [Custodian] for the Noteholders and the
Certificateholders, we request the release, and acknowledge receipt, of the
(Trustee's Mortgage File/[specify document]) for the Mortgage Loan described
below, for the reason indicated.
MORTGAGOR'S NAME, ADDRESS & ZIP CODE:
MORTGAGE LOAN NUMBER:
REASON FOR REQUESTING DOCUMENTS (check one)
____ 1. Mortgage Loan Paid in Full
(Servicer hereby certifies that all
amounts received in connection therewith have been
credited to the Principal and Interest Account and
remitted to the Trustee for deposit into the
Certificate Account pursuant to the Pooling and
Servicing Agreement.)
____ 2. Mortgage Loan Liquidated
(Servicer hereby certifies that all
proceeds of foreclosure, insurance or other
liquidation have been finally received and
credited to the Principal and Interest Account and
remitted to the Trustee for deposit into the
Certificate Account pursuant to the Pooling and
Servicing Agreement.)
____ 3. Mortgage Loan in Foreclosure
_____4. Mortgage Loan Purchased Pursuant to Section 11.01
of the Sale and Servicing Agreement.
_____5. Mortgage Loan Repurchased or Substituted Pursuant to Article II
or III of the Sale and Servicing Agreement (Servicer hereby
certifies that the repurchase price or Substitution Adjustment
has been credited to the Principal and Interest Account and
remitted to the Trustee for deposit into the Certificate Account
pursuant to the Sale and Servicing Agreement.)
_____6. Other (explain) ____________________________
---------------------------------
If box 1 or 2 above is checked, and if all or part of the
Trustee's Mortgage File was previously released to us, please release to us our
previous receipt on file with you, as well as any additional documents in your
possession relating to the above specified Mortgage Loan.
If box 3, 4, 5 or 6 above is checked, upon our return of all of
the above documents to you as [Trustee] [Custodian], please acknowledge your
receipt by signing in the space indicated
below, and returning this form.
THE MONEY STORE INC.
By:
Name:
Date:
Documents returned to [Trustee] [Custodian]:
- -------------------------------
[Trustee] [Custodian]
By:____________________________
Date:__________________________
<PAGE>
EXHIBIT G-1
REQUEST FOR RELEASE OF DOCUMENTS OF
90 DAY DELINQUENT FHA LOANS
To: [Custodian]
Re: Sale and Servicing Agreement, TMS Asset
Backed Notes and Asset Backed Certificates,
SERIES 199_-_, dated as of ________ __, 199_
In connection with the administration of the pool of Mortgage
Loans held by you as Custodian and agent for the Co-Trustee, we request the
release, and acknowledge receipt, of the (Trustee's Mortgage File/[specify
document]) for the 90 Day Delinquent FHA Loan described below, for the reason
indicated.
MORTGAGOR'S NAME, ADDRESS & ZIP CODE:
MORTGAGE LOAN NUMBER:
Upon receipt of this request, please execute and deliver such
90 Day Delinquent FHA Loan to us.
THE MONEY STORE INC.
By:
Name:
Date:
Documents returned to Custodian:
- -------------------------------
Custodian
By:____________________________
Date:__________________________
<PAGE>
EXHIBIT H
[Reserved]
<PAGE>
EXHIBIT I
CUSTODIAL AGREEMENT
Dated __________, 1994
____________________, a New York banking corporation, as
Trustee (the "Trustee") and _______________________________, a
____________________________ (the "Custodian"), agree as follows:
WHEREAS, the Trustee, the Originators and The Money Store Inc.
("TMS") have entered into a Sale and Servicing Agreement dated as of ________
__, 199_ relating to TMS Asset Backed Notes and Asset Backed Certificates,
Series 199_-_, (the "Sale and Servicing Agreement"), the terms defined therein
being used herein with the same meaning) pursuant to which the Originators
transferred, assigned, set-over and otherwise conveyed to the Trustee, without
recourse, all of the Originators' right, title and interest in and to the
mortgage loans identified in Exhibit E to the Sale and Servicing Agreement (the
"Mortgage Loans"); and
WHEREAS, in connection with such transfer and assignment and
pursuant to the Sale and Servicing Agreement, the Trustee holds, directly or
pursuant to a custodial agreement, the Mortgage Files:
WITNESSETH THAT:
In consideration of the premises and of the mutual agreements
herein contained, the Custodian and the Trustee agree as follows:
1. APPOINTMENT AS CUSTODIAN; ACKNOWLEDGMENT OF Receipt.
Subject to the terms and conditions herein, the Trustee hereby appoints the
Custodian, and the Custodian hereby accepts such appointment, as its Custodian
to maintain custody of the Trustee's Mortgage Files. The Custodian hereby
acknowledges receipt of the Mortgage Notes, the Mortgages, the assignments and
other documents relating to the Mortgage Loans referred to in Section 2.04,
except for the items referred to in Section 2.04(d)(ii), of the Sale and
Servicing Agreement. The Trustee shall be liable for all of the Custodian's fees
under this Agreement.
2. MAINTENANCE OF OFFICE. The Custodian agrees to maintain
each Trustee's Mortgage File identified in Section 2.04 of the Sale and
Servicing Agreement, said Exhibit being incorporated herein by reference, at the
office of the Custodian located at ________ ___________________ or at such other
office of the Custodian in New York, New York as the Custodian shall designate
from time to time after giving the Trustee 30 days' prior written notice.
3. DUTIES OF CUSTODIAN. As Custodian, the Custodian shall have
and perform the following powers and duties:
(a) SAFEKEEPING. To segregate the Trustee's Mortgage
Files from all other mortgages and mortgage notes and similar
records in its possession, to identify the Trustee's Mortgage
Files as being held and to hold the Trustee's Mortgage Files
for and on behalf of the Trustee for the benefit of all
present and future Noteholders and Certificateholders, to
maintain accurate records pertaining to each Mortgage Note and
Mortgage in the Trustee's Mortgage Files as will enable the
Trustee to comply with the terms and conditions of the Sale
and Servicing Agreement, to maintain at all times a current
inventory thereof and to conduct periodic physical inspections
of the Trustee's Mortgage Files held by it under this
Agreement in such a manner as shall enable the Trustee and the
Custodian to verify the accuracy of such record-keeping,
inventory and physical possession. The Custodian will promptly
report to the Trustee any failure on its part to hold the
Trustee's Mortgage Files as herein provided and promptly take
appropriate
action to remedy any such failure.
(b) RELEASE OF DOCUMENTS. To release any Mortgage
Note and Mortgage in the Trustee's Mortgage Files as provided
in the Sale and Servicing Agreement.
(c) ADMINISTRATION; REPORTS. In general, to attend to
all non-discretionary details in connection with maintaining
custody of the Trustee's Mortgage Files on behalf of the
Trustee. In addition, the Custodian shall assist the Trustee
generally in the preparation of reports to Noteholders and to
Certificateholders or to regulatory bodies to the extent
necessitated by the Custodian's custody of the Trustee's
Mortgage Files.
4. ACCESS TO RECORDS. The Custodian shall permit the Trustee
or its duly authorized representatives, attorneys or auditors and those persons
permitted access pursuant to Section 4.13 of the Sale and Servicing Agreement to
inspect the Trustee's Mortgage Files and the books and records maintained by the
Custodian pursuant hereto at such times as they may reasonably request, subject
only to compliance with the terms of the Sale and Servicing Agreement.
5. INSTRUCTIONS; AUTHORITY TO ACT. The Custodian shall be
deemed to have received proper instructions with respect to the Trustee's
Mortgage Files upon its receipt of written instructions signed by a Responsible
Officer of the Trustee. A certified copy of a resolution of the Board of
Directors of the Trustee may be accepted by the Custodian as conclusive evidence
of the authority of any such officer to act and may be considered as in full
force and effect until receipt of written notice to the contrary by the
Custodian from the Trustee. Such instructions may be general or specific in
terms.
6. INDEMNIFICATION BY THE CUSTODIAN. The Custodian agrees to
indemnify the Trustee for any and all liabilities, obligations, losses, damages,
payments, costs or expenses, including attorneys' fees, of any kind whatsoever
which may be imposed on, incurred by or asserted against the Trustee as the
result of any act or omission in any way relating to the maintenance and custody
by the Custodian of the Trustee's Mortgage Files; provided, however, that the
Custodian shall not be liable for any portion of any such amount resulting from
the gross negligence or wilful misconduct of the Trustee.
7. ADVICE OF COUNSEL. The Custodian and the Trustee further
agree that the Custodian shall be entitled to rely and act upon advice of
counsel with respect to its performance hereunder as Custodian and shall be
without liability for any action reasonably taken pursuant to such advice,
provided that such action is not in violation of applicable Federal or State
law. This paragraph shall not negate the Custodian's obligations under paragraph
6 above.
8. EFFECTIVE PERIOD, TERMINATION AND AMENDMENT, AND
INTERPRETIVE AND ADDITIONAL PROVISIONS. This Agreement shall become effective as
of the date hereof and shall continue in full force and effect until terminated
as hereinafter provided, and may be amended at any time by mutual agreement of
the parties hereto. This Agreement may be terminated by either party in a
writing delivered or mailed, postage prepaid, to the other party, such
termination to take effect no sooner than sixty (60) days after the date of such
delivery or mailing. Concurrently with, or as soon as practicable after, the
termination of this Agreement, the Custodian shall redeliver the Trustee's
Mortgage Files to the Trustee at such place as the Trustee may reasonably
designate. In connection with the administration of this Agreement, the
Custodian and the Trustee may agree from time to time upon the interpretation of
the provisions of this Agreement as may in their opinion by consistent with the
general tenor and purposes of this Agreement, any such interpretation to be
signed and annexed hereto.
9. GOVERNING LAW. This Agreement shall be governed
by, and construed in accordance with, the laws of the State of
New York.
10. NOTICES. Notices and other writings shall be delivered
or mailed, postage prepaid, to the Trustee at ___
- ---------------------------------------------------------, Attention:
____________________________________, or to the Custodian at,
_________________________________________, Attention: __________; or to such
other address as the Trustee or the Custodian may hereafter specify in writing.
Notices or other writings shall be effective only upon actual receipt by the
parties.
11. BINDING EFFECT. This Agreement shall be binding upon and
shall inure to the benefit of the Trustee and the Custodian and their respective
successors and assigns. Concurrently with the appointment of a successor trustee
as provided in Section ________ of the Sale and Servicing Agreement, the Trustee
and the Custodian shall amend this Agreement to make said successor trustee the
successor to the Trustee hereunder.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and on its behalf by a duly authorized
officer as of the day and year first above written.
----------------------------------------
as Trustee under the Sale and
Servicing Agreement referred to above
By:--------------------------------------
Custodian , as
By:--------------------------------------
<PAGE>
EXHIBIT J
CUSTODIAL AGREEMENT
(TMS Asset Backed Notes and
Asset Backed Certificates, Series 199_-_)
Dated _____ __, 199_
_____________, a national banking association headquartered in
____________________, as co-trustee (the "Co-Trustee"), and
__________________________, a national banking association headquartered in
___________________, as custodian ("Custodian"), agree as follows:
WHEREAS, the Trustee, the Originators and The Money Store Inc.
("TMS") have entered into a Sale and Servicing Agreement dated as of ________
__, 199_ (the "Sale and Servicing Agreement") relating to TMS Asset Backed Notes
and Asset Backed Certificates, Series 199_-_, (the applicable provisions of
which Sale and Servicing Agreement have been accepted and agreed to by the
Co-Trustee and the Custodian in connection with The FHA Loans) pursuant to which
the Originators transferred, assigned, set-over and otherwise conveyed to the
Trustee (or, in connection with the FHA Loans, to the Co-Trustee), without
recourse, all of the Originator's right, title and interest in and to the
mortgage loans identified in Exhibit E to the Sale and Servicing Agreement,
including the FHA Loans; and
WHEREAS, the Co-Trustee wishes to appoint the Custodian to
hold the Trustee's Mortgage Files relating to the FHA Loans as its custodian:
WITNESSETH THAT:
In consideration of the premises and of the mutual agreements
herein contained, the Custodian and the Co-Trustee agree as follows:
1. APPOINTMENT AS CUSTODIAN; ACKNOWLEDGEMENT OF RECEIPT.
Subject to the terms and conditions herein, the Co-Trustee hereby appoints the
Custodian, and the Custodian hereby accepts such appointment, as its custodian
to maintain custody of the Trustee's Mortgage Loan Files relating to the FHA
Loans. The Custodian hereby acknowledges that it has possession of the Trustee's
Mortgages Files relating to the FHA Loans, except as noted on the document
exception listing previously delivered to TMS or to be delivered to TMS and the
Co- Trustee in accordance with the Sale and Servicing Agreement.
2. CUSTODIAL ACCOUNT. The Custodian agrees to open a
segregated custody account in the Co-Trustee's name with itself at its office in
St. Paul, Minnesota or at such other of its offices in the State of Minnesota as
shall from time to time be identified to the Co-Trustee upon 30 days' prior
written notice, where the Trustee's Mortgage Files relating to the FHA Loans
will be held on behalf of the Co-Trustee.
3. DUTIES OF CUSTODIAN. As Custodian, the Custodian shall
have and perform the following powers and duties:
(a) SAFEKEEPING. The Custodian will hold the
Trustee's Mortgage Files relating to the FHA Loans on behalf of the Co-Trustee.
The Custodian will promptly report to the Co-Trustee any failure on its part to
hold the Trustee's Mortgage Files relating to the FHA Loans as herein provided
and promptly take appropriate action to remedy any such failure.
(b) ACCESS TO TRUSTEE'S MORTGAGE FILES. The Custodian will,
subject to security requirements of the Custodian applicable to its own
employees having access to similar records held by the Custodian and such
regulations as may be reasonably imposed by the Custodian, permit TMS, the
Co-Trustee or the Servicer or any of their duly authorized representatives,
attorneys or auditors to inspect the Trustee's Mortgage Files relating to the
FHA Loans at such times as the Co-Trustee may reasonably request.
(c) RELEASE OF DOCUMENTS. The Custodian will
release any FHA Loan to the Servicer for servicing by the Servicer or to TMS for
purchase by TMS, all as provided in the Sale and Servicing Agreement.
(d) ADMINISTRATION; REPORTS. The Custodian will, in general,
attend to all non-discretionary details in connection with maintaining custody
of the Trustee's Mortgage Files relating to the FHA Loans on behalf of the
Co-Trustee. In addition, the Custodian shall assist TMS, the Co-Trustee and the
Servicer generally in the preparation of routine reports to Noteholders and to
Certificateholders or to regulatory bodies, if any, to the extent necessitated
by the Custodian's custody of the Trustee's Mortgage Files relating to the FHA
Loans.
4. INSTRUCTIONS; AUTHORITY TO ACT. The Custodian shall be
deemed to have received proper instructions with respect to the Trustee's
Mortgage Files relating to the FHA Loans upon its receipt of written
instructions signed by a Responsible Officer of the Co-Trustee. A certified copy
of a resolution of the Board of Directors of the Co-Trustee may be received and
accepted by the Custodian as conclusive evidence of the authority of any such
officer to act and may be considered as in full force and effect until receipt
of written notice to the contrary by the Co-Trustee. Such instructions may be
general or specific in terms.
5. CUSTODIAL FEE. For its services under this Agreement, the
Custodian shall be entitled to reasonable compensation out of the Co-Trustee's
fees received pursuant to the Sale and Servicing Agreement.
6. INDEMNIFICATION BY THE CUSTODIAN. The Custodian agrees to
indemnify the Co- Trustee for any and all liabilities, obligations, losses,
damages, payments, costs or expenses, including attorneys' fees, of any kind
whatsoever which may be imposed on, incurred by or asserted against the
Co-Trustee as the result of any act or omission in any way relating to the
maintenance and custody by the Custodian of the Trustee's Mortgage Files
relating to the FHA Loans; provided, however, that the Custodian shall not be
liable for any portion of any such liabilities, obligations, losses, damages,
payments or costs due to the misconduct of the Co- Trustee.
7. ADVICE OF COUNSEL. The Custodian and the Co-Trustee further
agree that the Custodian shall be entitled to rely and act upon advice of
counsel with respect to its performance hereunder as Custodian and shall be
without liability for any action reasonably taken pursuant to such advice,
provided that such action is not in violation of applicable Federal or State
law.
8. EFFECTIVE PERIOD, TERMINATION AND AMENDMENT, AND
INTERPRETIVE AND ADDITIONAL PROVISIONS. This Agreement shall become effective as
of the date hereof and shall continue in full force and effect until terminated
as hereinafter provided, may be amended at any time by mutual agreement of the
parties hereto and may be terminated by the Co-Trustee in a writing delivered or
mailed to the Custodian and TMS, postage prepaid, such termination to take
effect no sooner than sixty (60) days after the date of such delivery or
mailing. Concurrently with, or as soon as practicable after any such
termination, the Custodian shall assemble the Trustee's Mortgage Files relating
to the FHA Loans and return them to the Co-Trustee at such place as the
Co-Trustee may reasonably designate. In connection with the administration of
this Agreement, the Custodian and the Co-Trustee may agree from time to time
upon the interpretation of the provisions of this Agreement as may in their
joint opinion be consistent with the general tenor and purposes of this
Agreement, any such interpretation to be signed by all parties and annexed
hereto.
9. GOVERNING LAW. This Agreement shall be governed
by, and construed in accordance with, the laws of the State of
Minnesota.
10. NOTICES. Notices and other writings shall be delivered
or mailed, postage prepaid, to the Co-Trustee at
- -------------,------------------------------------------------, Attn: Corporate
Trust Department, or to the Custodian at --------------------------,
- -------------------------------- _______________, Attention:
____________________, or to such other address as the Co-Trustee or the
Custodian may hereafter specify in writing, shall be conclusively presumed to
have been duly given hereunder to the respective party, whether or not such
party receives such notice.
11. BINDING EFFECT. This Agreement shall be binding upon and
shall inure to the benefit of the Co-Trustee and the Custodian and their
respective successors and assigns. Concurrently with the appointment of a
successor co-trustee as provided in the Sale and Servicing Agreement, the
Co-Trustee and the Custodian shall amend this Agreement to make said successor
co-trustee the successor to the Co-Trustee hereunder.
12. TERMS. Capitalized terms not otherwise defined in this
Agreement shall have the respective meanings given to them in the Sale and
Servicing Agreement.
-------------,
as Co-Trustee under the Sale and
Servicing Agreement referred to above
By:---------------------------------
Its:---------------------------
By:---------------------------------
Its:---------------------------
--------------------------
as Custodian under the Sale and
Servicing Agreement referred to above
By:---------------------------------
Its:---------------------------
By:---------------------------------
Its:---------------------------
<PAGE>
EXHIBIT K
FORM OF LIQUIDATION REPORT
Customer Name:
Account number:
Original Principal Balance:
1. Liquidation Proceeds
Principal Prepayment $________
Property Sale Proceeds ________
Insurance Proceeds ________
Other (Itemize) ________
Total Proceeds $_______
2. Servicing Advances $________
Monthly Advances ________
Total Advances $_______
3. Net Liquidation Proceeds $_______ (Line 1 minus Line 2)
4. Principal Balance of the Mortgage
Loan on date of liquidation $_______
5. Realized (Loss) or Gain $_______ (Line 3 minus Line 4)
<PAGE>
EXHIBIT L
FORM OF DELINQUENCY REPORT
DELINQUENCY AND FORECLOSURE INFORMATION
REO FORECLOSURES
OUTSTANDING # #OF # OF OUTSTANDING #OF OUTSTANDING
INVESTOR DOLLARS ACCT RANGES AMOUNT ACCTS. PCT ACCTS DOLLARS %ACCTS DOLLARS%
1 TO 29 DAYS
30 TO 59 DAYS
60 TO 89 DAYS
90 AND OVER
TOTALS
<PAGE>
EXHIBIT M
SERVICER'S MONTHLY COMPUTER TAPE FORMAT
The computer tape to be delivered to the Trustee pursuant to Section
_____ shall contain the following information for each Mortgage Loan as of the
related Record Date:
1. Name of the Mortgagor, address of the Mortgaged
Property and Account Number.
2. The LTV as of the origination date of the Mortgage Loan.
3. The Due Date.
4. The Mortgage Loan Original Principal Balance.
5. The Mortgage Interest Rate.
6. The Monthly Payment.
7. The date on which the last payment was received and
the amount of such payment segregated into the
following categories; (a) total interest received
(including Servicing Fee, Contingency Fee and Excess
Spread); (b) Servicing Fee and Contingency Fee;
(c) Excess Spread; (d) The amount equal to total interest
received minus Servicing Fee, Contingency Fee and
Excess Spread; (e) principal and Excess Payments
received; (f) Curtailments received; and
(g) Principal Prepayments received.
8. The Mortgage Loan Principal Balance.
9. The Mortgage Note maturity date.
10. A "Delinquency Flag" noting that the Mortgage Loan is current
or delinquent. If delinquent, state the date on which the last
payment was received.
11. A "Foreclosure Flag" noting that the Mortgage Loan is the
subject of foreclosure proceedings.
12. An "REO Flag" noting that the Mortgage Loan is an REO
Property.
13. A "Liquidated Mortgage Loan Flag" noting that the Mortgage
Loan is a Liquidated Mortgage Loan and the Net Liquidation
Proceeds received in connection therewith.
14. Lifetime Cap.
15. Lifetime Floor.
16. Periodic Cap.
17. Net Funds Cap.
18. Any additional information reasonably requested by the
Trustee.
<PAGE>
EXHIBIT N
SUB-SERVICING AGREEMENT
THIS SUB-SERVICING AGREEMENT is made effective as of the ____ day
of _____ 199_, by and between The Money Store Inc., a New Jersey corporation
(the "Servicer") whose principal business address is 2840 Morris Avenue, Union,
New Jersey 07083, and each of the entities listed on Schedule A hereto (each an
"Originator", and collectively the "Originators").
RECITALS
1. Each Originator is a wholly-owned subsidiary of the Servicer.
2. The Servicer, the Originators and ____________________, as
trustee (the "Trustee"), are parties to that certain Sale and Servicing
Agreement dated and effective as of ________ __, 199_ (the "Sale and Servicing
Agreement").
3. Pursuant to the terms of the Sale and Servicing Agreement,
each Originator has transferred those certain Mortgage Loans (as defined in the
Sale and Servicing Agreement) listed next to each Originator's name on Schedule
B hereto to the Trustee or (in the case of the FHA Loans, Co-Trustee), for the
benefit of Noteholders and Certificateholders (as defined in the Sale and
Servicing Agreement).
4. The Originators desire to convey to the Servicer the right to
service the Mortgage Loans. As authorized by the Sale and Servicing Agreement,
the Servicer desires to enter into a subservicing agreement with each Originator
so that each Originator will perform subservicing functions for the Mortgage
Loans transferred by it to the Trustee or (in the case of the FHA Loans,
Co-Trustee), such subservicing functions to be rendered in compliance with the
terms of the Sale and Servicing Agreement.
5. Each Originator desires to undertake such subservicing and
supervision of the Mortgage Loans on the terms and conditions hereinafter set
forth.
NOW, THEREFORE, in consideration of the agreements of the parties
herein and other good and valuable consideration, the receipt and sufficiency of
which each party hereby acknowledges, and in order in part to induce the Trustee
to enter into the Sale and Servicing Agreement and perform its obligations
thereunder, the parties agree as follows:
1. ASSIGNMENT OF SERVICING; SUBSERVICING AGREEMENT. Each
Originator hereby assigns, transfers, conveys and sets over to the Servicer, its
successors and assigns, all of such Originator's right, title and interest to
service the Mortgage Loans listed next to such Originator's name on the schedule
furnished by each Originator to the Servicer and dated the date hereof, to have
and to hold such rights hereby assigned, conveyed and transferred to the
Servicer, for its own use and benefit, and that of its successors and assigns,
forever. In consideration of the foregoing assignment, the Servicer hereby
appoints each Originator as subservicer with respect to the Mortgage Loans
conveyed by each such Originator to the Trustee (or, in the case of the FHA, to
the Co-Trustee), each such Originator to service and supervise such Mortgage
Loans as provided for herein, such subservicing to commence on the effective
date of this Agreement and to terminate as provided for herein. As compensation
for such subservicing and supervision, each Originator shall be entitled to an
annual fee for each Mortgage Loan serviced, such fee to be computed and paid as
set forth on Schedule B hereto. Each Originator, as contract subservicer, shall
service and administer the Mortgage Loans and shall have full power and
authority, acting alone, to do any and all things in connection with such
servicing and administration which the Originator may deem necessary or
desirable; PROVIDED, HOWEVER, that each Originator shall -------- -------
conduct its servicing activities (i) in compliance with and pursuant to the
servicing requirements set out in the Sale and Servicing Agreement, as such
requirements relate to subservicing rendered thereunder, and (ii) to the extent
not inconsistent with such Originator's obligations as an authorized subservicer
under the Sale and Servicing Agreement, (x) in accordance with the provisions of
Section 3 hereof and (y) otherwise in accordance with the standards and
requirements set forth on Schedule C hereto and subject to applicable Federal,
state and local laws and regulations. On or after the date hereof, each
Originator shall deliver such appropriately executed and authenticated
instruments of sale, assignment, transfer and conveyance to the Servicer, if
any, including limited powers of attorney, as the Servicer or its counsel
determine to be reasonable in order to accomplish the transfer to the Servicer
of such Originator's rights with respect to the servicing.
2. REPRESENTATIONS AND WARRANTIES. Each Originator represents and
warrants as follows:
2.1 Such Originator is a corporation duly organized, validly
existing and in good standing under the laws of its state of incorporation.
Originator is and at all relevant times has been properly licensed and qualified
to transact business in all appropriate jurisdictions, to conduct all activities
performed with respect to origination and servicing of the Mortgage Loans and is
in good standing in each jurisdiction in which the failure to be in such good
standing would have a material, adverse effect on the consummation of the
transactions contemplated hereby.
2.2 Originator has all requisite corporate power, authority and
capacity to enter into this Agreement and to perform the obligations required of
it hereunder. The execution and delivery of this Agreement by the Originator,
and the consummation of the transactions contemplated hereby, have each been
duly and validly authorized by all necessary corporate action. This Agreement
constitutes the valid and legally binding agreement of Originator enforceable in
accordance with its terms, and no offset, counterclaim or defense exists to the
full performance of this Agreement, subject to laws respecting bankruptcy,
receivership, insolvency and other laws affecting creditors' rights generally.
2.3 The execution, delivery and performance of this Agreement by
Originator, its compliance with the terms hereof and consummation of the
transactions contemplated will not violate, conflict with, result in a breach
of, constitute a default under, be prohibited by or require any additional
approval under its certificate of incorporation, bylaws, or any instrument or
agreement to which it is a party or by which it is bound or which affects the
servicing conveyed hereunder.
2.4 Such Originator is the lawful owner of the servicing, has the
sole right and authority to transfer the servicing as contemplated hereby, and
is not contractually obligated to sell the servicing to any other party. The
transfer, assignment and delivery of the servicing in accordance with the terms
and conditions of this Agreement shall vest in the Servicer all rights as
servicer free and clear of any and all claims, charges, defenses, offsets and
encumbrances of any kind or nature whatsoever, including but not limited to
those of Originator.
2.5 With respect to each individual Mortgage Loan for which
servicing rights are assigned hereunder, such Originator makes to the Servicer
those representations and warranties that are contained in Section 3.02 of the
Sale and Servicing Agreement.
3. ORIGINATOR'S DUTIES. Until the principal, interest and any
other amounts due on each Mortgage Loan are paid in full, each Originator shall:
A. Proceed diligently to collect all payments due
under the terms of each Mortgage Loan as they become due.
B. Keep a complete and accurate account of and
properly apply all sums collected by it from the mortgagor on
account of each such Mortgage Loan for principal and interest,
and upon request, furnish evidence acceptable to the Servicer of
all expenditures for taxes, assessments and other public charges
and hazard insurance premiums. In the event any Mortgagor fails
to make a payment to an Originator required to be made under the
terms of any such Mortgage Loan, such Originator will notify the
Servicer of such fact within 20 days after the same shall have
become due and payable.
C. Deposit all funds received in respect of each
Mortgage Loan in an account in an institution the accounts of
which are insured by an agency of the United States government.
Unless directed otherwise by the Servicer such account shall be
held by a Originator, which shall maintain or shall cause to be
maintained detailed records to show the respective interest of
each individual mortgagor in the account.
D. Pay into the related Principal and Interest
Accounts (as defined in the Sale and Servicing Agreement) all
amounts of principal and interest collected under the Mortgage
Loans.
E. Submit to the Servicer at least annually an
accounting of the balances in each such account, if any.
F. Perform such other customary duties, furnish
such other reports and execute such other documents in connection
with its duties hereunder as the Servicer from time to time
reasonably may require.
4. ADVANCES BY ORIGINATOR. In the event an Originator, on behalf
of the Servicer, makes any advance of principal and/or interest to the holder of
a mortgage serviced hereunder before such Originator has received the applicable
mortgage payment from any mortgagor, or makes any other advance to protect the
security of a mortgage or otherwise (including but not limited to property
taxes, special assessments, and hazard insurance premiums), EXCEPT advances
related to foreclosure or real estate owned losses (which are covered by Section
8), then the Servicer, promptly upon being billed therefore, shall, at its
option, either (i) reimburse such Originator the full amount of all such
advances, (ii) credit such amount as a set-off against amounts such Originator
may then owe to the Servicer pursuant to this Agreement, (iii) use a combination
of such reimbursement and crediting to fully discharge such amount or (iv)
forego such reimbursement or crediting with respect to all or a portion of such
amount, in which case the amount not reimbursed or offset shall be deemed
currently due and payable and, until paid to such Originator, shall bear
interest on the average monthly balance thereof at the underlying Mortgage Loan
Rate.
5. ORIGINATOR'S RECORDS; MONITORING OF PROPERTY. Each Originator
will during regular business hours make all of its records and files relating to
Mortgage Loans covered by this Agreement available for inspection by the
Servicer and its authorized agents. In addition, an Originator will use ordinary
diligence to ascertain, and will forthwith notify the Servicer of any of the
following which might come to the attention of such Originator:
A. The vacating of or any change in the occupancy
of any premises securing a mortgage.
B. The sale or transfer of any such premises.
C. The death, bankruptcy, insolvency or other
disability of a mortgagor which might impair ability to repay the
Mortgage Loan.
D. Any loss or damage in excess of $10,000 to any
such premises, in which event, in addition to notifying the
Servicer, an Originator shall see to it that the insurance
companies concerned are promptly notified. For losses or damages
of $10,000 or less, the Servicer hereby authorizes an Originator
to endorse insurance checks or drafts on behalf of the Servicer.
For losses or damages in excess of $10,000, an Originator shall
make a report to the Servicer and the Servicer retains the right
to endorse any insurance drafts related to such loss or damage.
E. Any lack of repair or any other deterioration or waste
suffered or committed in respect to the premises covered by any
mortgage.
It is understood and agreed, however, that no notice need be given to the
Servicer of any facts other than those of which an Originator has actual notice,
or those of which an Originator would, except for its negligence, have had
actual notice.
6 NO WAIVER, RELEASE OR CONSENT BY ORIGINATOR. An Originator will not
waive, modify, release or consent to postponement on the part of the mortgagor
of any term or provision of any Mortgage Loan without the consent of the
Servicer.
7. HAZARD INSURANCE. An Originator shall cause to be maintained such
fire and hazard insurance as shall be requested by the Servicer pursuant to
Sections 4.07 and 4.08 of the Sale and Servicing Agreement.
8. FORECLOSURE AND REAL ESTATE OWNED. An Originator will assist in the
foreclosure or other acquisition of the property securing any Mortgage Loan and
the transfer of such property, pursuant to instruction of the Servicer given
under Section 4.10 of the Sale and Servicing Agreement.
9. TERM; TERMINATION. This Agreement shall commence on the date hereof
and shall, subject to earlier termination pursuant to the provisions of this
Section 9, terminate upon the termination of the Sale and Servicing Agreement.
This Agreement may be cancelled and terminated (i) at any time hereunder by the
Servicer on 10 days notice to an Originator, or (ii) by the Trustee or the
Co-Trustee on notice to an Originator, at any time after the Trustee or the Co-
Trustee, as the case may be, shall have become the successor servicer with
respect to the Mortgage Loans or FHA Loans, as the case may be, pursuant to
Sections 10.01 and 10.02 of the Sale and Servicing Agreement. In addition, this
Agreement may be cancelled and terminated by the Servicer, by notice to an
Originator, if:
A. An Originator fails in a material respect to perform its
obligations hereunder and (i) does not cure or rectify such failure within 45
days or, (ii) if the character of such cure or rectification is such that it
cannot reasonably be effected within 45 days, does not commence such cure or
rectification within 45 days and complete the same within a commercially
reasonable time thereafter, given the circumstances.
B. An Originator becomes insolvent or bankrupt or is placed under
conservatorship or receivership.
C. An Originator assigns or attempts to assign its rights and
obligations hereunder, without written consent of the Servicer, provided that
any assignment, transfer or other conveyance of an Originator's rights and
obligations hereunder that occurs as a result of a merger, consolidation,
reorganization, name change or acquisition of or involving an Originator shall
not be construed as an assignment (or attempted assignment) under the provisions
of this Section 9.C.
Upon termination of this Agreement, an Originator will account for and turn over
to the Servicer all funds collected under each Mortgage Loan for which said
termination is effective, less only the compensation, fees and reimbursements
then due an Originator, and will deliver to the Servicer or its designee all
records and documents relating to each such mortgage.
10. COMPLIANCE WITH LAWS, RULES AND REGULATIONS. Each Originator
will comply with, and will use all reasonable efforts to cause each Mortgagor to
comply with, all applicable state and federal rules and regulations or
requirements including those requiring the giving of notices.
11. FIDELITY, ERRORS AND OMISSIONS INSURANCE, ETC. Each
Originator agrees to be responsible, at no expense to the Servicer, for seeing
to it that at all times, while this Agreement is in force, policies of fidelity,
fire, and extended coverage, theft, forgery, and errors and omissions insurance
are maintained in conformity with the Sale and Servicing Agreement. Each
Originator will, without demand therefore, provide the Servicer annually, on a
date agreeable to the Servicer, a certificate or binder of insurance delineating
the various types of insurance carried by such Originator.
12. MISCELLANEOUS. This document contains the entire agreement
between the parties hereto and cannot be modified in any respect except by an
amendment in writing signed by each party. The invalidity of any portion of this
Agreement shall in no way affect the balance thereof. Any notice permitted or
required hereunder shall be in writing and shall be deemed given when hand
delivered to an officer or authorized agent of, or when mailed, registered or
certified mail, postage prepaid, to Servicer or an Originator at the address of
the Servicer set forth above. The captions and headings used in this Agreement
are for convenience only, and do not define or limit the terms and provisions of
this Agreement. Notwithstanding any provision in this Agreement to the contrary,
nothing contained herein shall be deemed an attempt to assign or an assignment
of any servicing rights by an Originator to the Servicer if an attempted
assignment of the same without the consent of any agency or instrumentality of
the United States or a state thereof (a "Regulatory Authority") with
jurisdiction over such assignment would constitute a breach of an applicable
regulatory requirement or agreement between an Originator and such Regulatory
Authority unless and until such consent shall have been obtained. In the event
the consent of any Regulatory Authority is required to authorize the conveyance
of any or all of the servicing to be conveyed hereunder and such consent shall
not have been granted prior to the occurrence of Servicer Default under Section
10.01 of the Sale and Servicing Agreement, then upon the occurrence of an Event
of Default, each Originator shall enter into an agreement with the Trustee (or,
in the case of the FHA Loans, the Co-Trustee), which agreement shall be in form
and substance satisfactory to the Trustee (or, in the case of the FHA Loans, the
Co-Trustee) and its counsel, which recognizes the Trustee (or, in the case of
the FHA Loans, the Co-Trustee) as the successor servicer of the Mortgage Loans
as provided for by such Section 10.01, and shall continue to subservice the
Mortgage Loans or shall convey such subservicing at the election and upon the
direction of the Trustee (or, in the case of the FHA Loans, the Co-Trustee).
<PAGE>
IN WITNESS WHEREOF, each party has caused this instrument to be signed
in its corporate name on its behalf by its proper officials duly authorized as
of the day and year first above written.
SERVICER:
ATTEST: The Money Store Inc.
By: ______________________ By: ______________________________
Philip Arem Harry Puglisi
Assistant Secretary Treasurer
[LIST OF ORIGINATORS]
ATTEST:
By: _______________________ By: ______________________________
Philip Arem Harry Puglisi
Assistant Secretary Treasurer
<PAGE>
SCHEDULE A
[List of Originators]
<PAGE>
SCHEDULE B
Each Originator shall receive 25 basis points as compensation for
servicing hereunder as well as other servicing fees as permitted.
ORIGINATORS MORTGAGE LOANS TRANSFERRED
[List of Originators]
<PAGE>
SCHEDULE C
1. Make telephone contact with any Mortgagor whose account is either a first
payment default or delinquent 9-29 days.
2. Confirm telephone contacts as necessary.
3. Contact, in writing, each Mortgagor who can not be contacted.
4. Send a "default" letter to any Mortgagor who is 30 days delinquent.
5. Commence foreclosure proceedings after 60 days delinquency.
6. Obtain legal counsel where appropriate including in foreclosure matter
commenced by prior lienholders and bankruptcy matters.
7. Monitor all outside counsel and proceedings.
8. Monitor loans for continuing performance.
<PAGE>
EXHIBIT O
PRICES FOR LOW INTEREST POOL I MORTGAGE LOANS
Exhibit 23.2
KPMG Peat Marwick LLP
400 Capital Mall
Sacramento, CA 95814
INDEPENDENT AUDITORS' CONSENT
The Board of Directors and Shareholders
The Money Store Inc.:
We consent to incorporation by reference in the registration statement (No.
333-32775) on Amendment No. 1 to Form S-3 Registration Statement dated September
9, 1997 of The Money Store Inc. of our report dated February 12, 1997,
relating to the consolidated statement of financial condition of The Money Store
Inc. and subsidiaries as of December 31, 1996, and 1995, and the related
consolidated statements of income, shareholders' equity, and cash flows for each
of the years in the three-year period ended December 31, 1996, which report
appears in the December 31, 1996, annual report on Form 10-K of The Money Store
Inc., and to the reference to our Firm under the heading "Experts" in the
Registration Statement.
/s/ KPMG Peat Marwick LLP
Sacramento, California
September 9, 1997
[EXHIBIT 25.1]
==============================================================================
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(B)(2) |__|
THE BANK OF NEW YORK
(EXACT NAME OF TRUSTEE AS SPECIFIED IN ITS CHARTER)
NEW YORK 13-5160382
(STATE OF INCORPORATION (I.R.S. EMPLOYER
IF NOT A U.S. NATIONAL BANK) IDENTIFICATION NO.)
48 WALL STREET, NEW YORK, N.Y. 10286
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
THE MONEY STORE INC.
(EXACT NAME OF OBLIGOR AS SPECIFIED IN ITS CHARTER)
NEW JERSEY 22-2293022
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
AND THE ORIGINATORS LISTED BELOW
THE MONEY STORE/D.C. INC. D.C. 22-2133027
THE MONEY STORE/KENTUCKY INC. KENTUCKY 22-2459832
THE MONEY STORE/MINNESOTA INC. MINNESOTA 22-3003495
THE MONEY STORE HOME EQUITY CORP. KENTUCKY 22-2522232
TMS MORTGAGE INC. NEW JERSEY 22-3217781
THE MONEY STORE INVESTMENT NEW JERSEY 22-2293019
CORPORATION
THE MONEY STORE OF NEW YORK, INC. NEW YORK 22-3143559
THE MONEY STORE COMMERCIAL NEW JERSEY 22-2378261
MORTGAGE INC.
2840 MORRIS AVENUE
UNION, NEW JERSEY 07083
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
----------------------
ASSET BACKED NOTES AND ASSET BACKED CERTIFICATES
(TITLE OF THE INDENTURE SECURITIES)
==============================================================================
<PAGE>
1. GENERAL INFORMATION. FURNISH THE FOLLOWING INFORMATION AS TO THE
TRUSTEE:
(a) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISING AUTHORITY TO
WHICH IT IS SUBJECT.
- --------------------------------------------------------------------------------
NAME ADDRESS
- --------------------------------------------------------------------------------
SUPERINTENDENT OF BANKS OF THE STATE OF 2 RECTOR STREET, NEW
YORK, NEW YORK N.Y. 10006, AND ALBANY,
N.Y. 12203
FEDERAL RESERVE BANK OF NEW YORK 33 LIBERTY PLAZA, NEW YORK
N.Y. 10045
FEDERAL DEPOSIT INSURANCE CORPORATION WASHINGTON, D.C. 20429
NEW YORK CLEARING HOUSE ASSOCIATION NEW YORK, NEW YORK 10005
(b) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
YES.
2. AFFILIATIONS WITH OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
NONE.
16. LIST OF EXHIBITS.
EXHIBITS IDENTIFIED IN PARENTHESES BELOW, ON FILE WITH THE
COMMISSION, ARE INCORPORATED HEREIN BY REFERENCE AS AN EXHIBIT
HERETO, PURSUANT TO RULE 7A-29 UNDER THE TRUST INDENTURE ACT OF 1939
(THE "ACT") AND 17 C.F.R. 229.10(D).
1. A COPY OF THE ORGANIZATION CERTIFICATE OF THE BANK OF NEW
YORK (FORMERLY IRVING TRUST COMPANY) AS NOW IN EFFECT, WHICH
CONTAINS THE AUTHORITY TO COMMENCE BUSINESS AND A GRANT OF
POWERS TO EXERCISE CORPORATE TRUST POWERS. (EXHIBIT 1 TO
AMENDMENT NO. 1 TO FORM T-1 FILED WITH REGISTRATION
STATEMENT NO. 33-6215, EXHIBITS 1A AND 1B TO FORM T-1 FILED
WITH REGISTRATION STATEMENT NO. 33-21672 AND EXHIBIT 1 TO
FORM T-1 FILED WITH REGISTRATION STATEMENT NO. 33-29637.)
4. A COPY OF THE EXISTING BY-LAWS OF THE TRUSTEE. (EXHIBIT 4 TO
FORM T-1 FILED WITH REGISTRATION STATEMENT NO. 33-31019.)
6. THE CONSENT OF THE TRUSTEE REQUIRED BY SECTION 321(B) OF THE
ACT. (EXHIBIT 6 TO FORM T-1 FILED WITH REGISTRATION
STATEMENT NO. 33-44051.)
7. A COPY OF THE LATEST REPORT OF CONDITION OF THE TRUSTEE
PUBLISHED PURSUANT TO LAW OR TO THE REQUIREMENTS OF ITS
SUPERVISING OR EXAMINING AUTHORITY.
<PAGE>
SIGNATURE
PURSUANT TO THE REQUIREMENTS OF THE ACT, THE TRUSTEE, THE BANK OF NEW
YORK, A CORPORATION ORGANIZED AND EXISTING UNDER THE LAWS OF THE STATE OF NEW
YORK, HAS DULY CAUSED THIS STATEMENT OF ELIGIBILITY TO BE SIGNED ON ITS BEHALF
BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, ALL IN THE CITY OF NEW YORK, AND
STATE OF NEW YORK, ON THE 29TH DAY OF AUGUST, 1997.
THE BANK OF NEW YORK
BY: /S/VIVIAN GEORGES
NAME: VIVIAN GEORGES
TITLE: ASSISTANT VICE PRESIDENT
Exhibit 7
Consolidated Report of Condition of
THE BANK OF NEW YORK
of 48 Wall Street, New York, N.Y. 10286 And
Foreign and Domestic Subsidiaries, a member of the Federal
Reserve System, at the close of business March 31, 1997,
published in accordance with a call made by the Federal
Reserve Bank of this District pursuant to the provisions of
the Federal Reserve Act.
Dollar Amounts
ASSETS in Thousands
Cash and balances due from depos-
itory institutions:
Noninterest-bearing balances and
currency and coin .................. $ 8,249,820
Interest-bearing balances .......... 1,031,026
Securities:
Held-to-maturity securities ........ 1,118,463
Available-for-sale securities ...... 3,005,838
Federal funds sold and Securities pur-
chased under agreements to resell...... 3,100,281
Loans and lease financing
receivables:
Loans and leases, net of unearned
income .................32,895,077
LESS: Allowance for loan and
lease losses ..............633,877
LESS: Allocated transfer risk
reserve........................429
Loans and leases, net of unearned
income, allowance, and reserve 32,260,771
Assets held in trading accounts ...... 1,715,214
Premises and fixed assets (including
capitalized leases) ................ 684,704
Other real estate owned .............. 21,738
Investments in unconsolidated
subsidiaries and associated
companies .......................... 195,761
Customers' liability to this bank on
acceptances outstanding ............ 1,152,899
Intangible assets .................... 683,503
Other assets ......................... 1,526,113
-----------
Total assets ......................... $54,746,131
===========
LIABILITIES
Deposits:
In domestic offices ................ $25,614,961
Noninterest-bearing ......10,564,652
Interest-bearing .........15,050,309
In foreign offices, Edge and
Agreement subsidiaries, and IBFs ... 15,103,615
Noninterest-bearing .........560,944
Interest-bearing .........14,542,671
Federal funds purchased and Securities
sold under agreements to repurchase. 2,093,286
Demand notes issued to the U.S.
Treasury ........................... 239,354
Trading liabilities .................. 1,399,064
Other borrowed money:
With remaining maturity of one year
or less .......................... 2,075,092
With remaining maturity of more than
one year ......................... 20,679
Bank's liability on acceptances exe-
cuted and outstanding .............. 1,160,012
Subordinated notes and debentures .... 1,014,400
Other liabilities .................... 1,840,245
-----------
Total liabilities .................... 50,560,708
-----------
EQUITY CAPITAL
Common stock ........................ 942,284
Surplus ............................. 731,319
Undivided profits and capital
reserves .......................... 2,544,303
Net unrealized holding gains
(losses) on available-for-sale
securities ........................ ( 19,449)
Cumulative foreign currency transla-
tion adjustments .................. ( 13,034)
------------
Total equity capital ................ 4,185,423
-----------
Total liabilities and equity
capital ........................... $54,746,131
===========
I, Robert E. Keilman, Senior Vice President and Comptroller of the
above-named bank do hereby declare that this Report of Condition has been
prepared in conformance with the instructions issued by the Board of Governors
of the Federal Reserve System and is true to the best of my knowledge and
belief.
Robert E. Keilman
We, the undersigned directors, attest to the correctness of this
Report of Condition and declare that it has been examined by us and to the best
of our knowledge and belief has been prepared in conformance with the
instructions issued by the Board of Governors of the Federal Reserve System and
is true and correct.
Alan R. Griffith
J. Carter Bacot
Thomas A. Renyi Directors
